Several factors are making ETF investors consider increasing their global exposure
The US financial markets have traditionally been a central focus for investors — particularly in the ETF space, which has already breached US$5 trillion this year, according to ETFGI. However, the share of US markets in the ETF space may soon slip as financial advisors and investors start to look at other global opportunities.
“US investors have been underweight international equities in recent years, as compared to the historical mean, particularly immediately following the US presidential election,” said Chris Huemmer, senior investment strategist at FlexShares, according to a report on ETFTrends.com. “However, we’re seeing a transition in investor expectations, as they realize the US is not the sole engine of global growth.”
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Huemmer noted a combination of factors driving the shift, including strong emerging-market performance, positive expectations for global growth, compelling valuations of international equities, and more accommodative monetary policy overseas.
In a recent survey of more than 250 advisors conducted by Northern Trust’s FlexShares ETFs, half of respondents expressed plans to increase their international-market allocation this year. Forty-four per cent said they were not planning any changes, while 4% said they were expecting to decrease their exposure.
Still, advisors see hurdles to their international trade. Some 64% of respondents cited geopolitical risks as a top concern. Other issues cited were costs (39%), liquidity (25%), and regulations (21%).
“Concerns about investing internationally do not appear to limit advisor interest in capitalizing on opportunities abroad,” said Darek Wojnar, head of Funds and Managed Accounts Group. “With international growth expected by many to continue, advisors are adjusting their asset allocation models to account for this.”
Looking at financial advisors’ preferred fund types for international exposure, 70% said they were investing in traditional mutual-fund products, 58% in ETFs, and 38% used a mixture of both.
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