By John Wasik
CHICAGO Dec 9 There is a growing consensus that
U.S. stocks, as well as stocks around the world, are going to
catch a tailwind going into 2014.
Expanding economies and continued central-bank stimulus are
the bellows behind this expected growth. If you do not have
international stock exposure, now is the time to broaden your
portfolio with these three exchange-traded funds (ETFs).
One of the best vehicles to grab growth around the world is
a global stock ETF. The Vanguard Total World Stock Index ETF
owns more than 5,000 stocks, but has its top holdings in
mega-cap American companies like Apple Inc, Exxon Mobil
Corp and Google Inc.
The Vanguard fund is up 22 percent for the year though Dec.
6 and has beaten a world stock benchmark by about 2 percentage
points over the past three and five years. The fund charges 0.19
percent for annual expenses.
If you do not want a portfolio dominated by U.S. blue chips,
then consider the iShares MSCI Emerging Markets Index ETF
. The fund invests in an index of companies in developing
nations and holds stocks like Samsung Electronics Co Ltd
, Taiwan Semiconductor Manufacturing Co and
China Mobile Ltd.
Charging 0.69 percent for annual expenses, the iShares fund
is up 0.21 percent for the year through Dec. 6 and has averaged
more than 15 percent annually over the past half-decade.
For a more Euro-centered focus, consider the Vanguard FTSE
Europe ETF, which owns established European companies
such as Nestle SA, HSBC Holdings PLC and
Roche Holding AG. The fund has gained nearly 23 percent
for the past year through Dec. 6 and charges 0.12 percent
annually for expenses.
THE GROWTH OUTLOOK
Although recovery has been sluggish since the financial
meltdown of 2008, economies in the United States and abroad seem
finally to have found solid footing.
According to S&P Capital IQ, "the global expansion is seen
ramping up as 2014 progresses, with growth forecast to reach 3
percent by the fourth quarter, up from 2.6 percent in the first
Some of the bright spots include Europe and China. An
aggressive stimulus policy by the European Central Bank has
buoyed some of the hardest-hit economies, such as those of
Spain, Italy and Greece. Fears that the Euro Zone would buckle
The European Central Bank, echoing the U.S. Federal
Reserve's post-2008 actions, lowered its benchmark rate to 0.25
percent recently. The Euro Zone economy is also aided by low
inflation, running under 1 percent annually.
There is even an argument that European stocks are
undervalued relative to the United States, according to StarMine
analytics, a Thomson Reuters unit. While U.S. companies have
benefited from a slowly growing economy, increasing employment,
low inflation and interest rates, the Euro Zone is just now
climbing out of recession. There may be more bargains relative
to the U.S. market.
In China, where many analysts had feared a "hard landing" as
growth slowed, the country's economic growth rose, expanding at
a 7.8 percent clip in the third quarter - up from 7.5 percent in
the second quarter. The country is expected to lead all world
economies at a forecast 7.4 percent growth rate in 2014.
Despite the improving economic climate abroad, all eyes will
be watching the Fed in Washington. When will the central bank
pull back its $85 billion-a-month bond buying program? That will
depend upon how much U.S. employment improves; the Fed has set a
benchmark of a 6.5 percent unemployment rate as a trigger for
With the job market improving - as witnessed in Friday's
employment report for the month of November -
traders are nervous that the Fed will ease off its stimulus
program, which has partially fueled the stock rally.
The Fed's eventual braking of its stimulus plan would likely
raise the value of the dollar on foreign exchanges, which would
hurt the shares of non-U.S. stocks denominated in foreign
currencies, which is a perennial risk. That could also spark a
withdrawal of investment in developing markets.
An even greater risk, according to Bill Gross, managing
director of PIMCO, which manages nearly $2 trillion, is that
"overlevered economies and their financial markets must at some
point pay a price, experience a haircut, and flush confident
investors from the comfort of this Great Moderation Part II," he
wrote in his most recent PIMCO newsletter.
Until that happens, profit growth in the United States and
abroad will propel continued stock price gains. That is why it
still makes sense to have at least 30 to 40 percent of your
stock holdings in non-U.S. stocks.