The U.S. stock market has been the envy of the world for several years, but the threat of onerous tariffs and sky-high equity valuations could jeopardize these trends. While countries on the receiving end of tariffs could see slower economic growth in the near term, the case for international diversification has never been stronger, as investors look to de-risk their portfolios.
There’s no shortage of exchange-traded funds (ETFs) offering global or international exposure, including many low-cost passively-managed funds. However, investors looking for a little extra alpha may want to consider actively managed funds, where managers have more flexibility to pursue advanced strategies.
In this article, we’ll take a look at three new active ETFs offering unique approaches to international diversification and whether you should consider them for your portfolio in today’s economic climate.
HFGM: A Hedge Fund Alternative
Unlimited HFGM Global Macro ETF (HFGM) leverages the same strategies as conventional global macro hedge funds while targeting a volatility level approximately twice that of its 2-and-20 competitors. The fund managers use liquid ETF contracts and a basket of ETFs based on systemic signals that are adjusted based on evolving market conditions to mimic global macro performance.
The fund’s strategies focus on global market mispricing opportunities spanning currency, fixed income, equity, credit, and exchange rate markets. And, on the whole, Unlimited’s funds have a long track record of generating consistent alpha with low correlations to the broader equity and fixed income markets, making them an excellent way to diversify.
Currently, the fund holds a concentrated portfolio of assets that’s unlike many passively-managed international ETFs, including a 40% stake in gold futures, 30% exposure to emerging market bonds, and about 17% exposure to Nikkei 225 futures. With a 1% expense ratio, the fund is more expensive than conventional ETFs, but much cheaper than 2-and-20 hedge funds.
BFRE: Investing in Democracies
Westwood LBRTY Global Equity ETF (BFRE) is a global equity fund that eliminates exposure to countries under authoritarian control with a rules-based methodology that promotes investments benefiting from democratic governance. And, apart from weeding out authoritarian countries, the fund offers broad exposure to both developed and emerging markets.
According to MIT researchers 1, countries switching to democratic rule experienced a 20% increase in gross domestic product (GDP) over a 25-year period compared to what would have happened had they remained authoritarian states, suggesting their economies may outperform. These results were primarily attributed to broad-based investment in health and human capital.
The fund’s portfolio offers the most exposure to the United States (76.9%), Canada (6.1%), the U.K. (4.1%), and France (4.1%), with no exposure to China or other authoritarian states. In terms of sector diversification, the fund is most heavily weighted in technology, finance, and non-cyclical consumer companies. And currently, the portfolio includes 23 companies with a 0.5% expense ratio.
RCGE: Investing in Gender Equality
RockCreek Global Equality ETF (RCGE) invests in a global portfolio of companies demonstrating a commitment to managing their organizations with a gender-balanced approach. By focusing on gender balance, pay gaps, and related policies across both developed and emerging market economies, the fund aims to offer a better risk-adjusted return than its international fund peers.
In addition to offering a values-aligning global allocation option for impact-focused investors, S&P Global researchers 2 found that companies promoting women and diversity performed better than less-diverse firms. The researchers found that firms with female CEOs and CFOs had superior stock market performance compared with the market average.
Currently, the fund holds a portfolio of about 200 companies worldwide, with no company amounting to more than 0.7% of the portfolio. This equal-weight approach translates to less exposure to large tech companies—a potential issue with market cap-weighted funds—although its 0.95% expense ratio makes it more expensive than passive alternatives.
Alternative Global ETFs to Consider
These ETFs are sorted by their YTD total returns, which ranges from 9.8% to 15.5%. They have AUM between $5.4B amd $9B, with expenses running between 0.18% and 0.36%. They are currently yielding between 1% and 4.3%.
| Name | Ticker | Type | Actively Managed? | AUM | YTD Total Ret (%) | Expense | |
|---|---|---|---|---|---|---|---|
| Avantis International Small Cap Value ETF | AVDV | ETF | Yes | $7.18B | 15.5% | 4.3% | 0.36% |
| Dimensional International Core Equity 2 ETF | DFIC | ETF | Yes | $5.47B | 15.5% | 1.1% | 0.23% |
| Dimensional International Core Equity Market ETF | DFAI | ETF | Yes | $8.66B | 14.6% | 1.2% | 0.18% |
| Dimensional World ex U.S. Core Equity 2 ETF | DFAX | ETF | Yes | $7.43B | 13.2% | 1% | 0.29% |
| Avantis Emerging Markets Equity ETF | AVEM | ETF | Yes | $7.41B | 9.8% | 4% | 0.33% |
The Bottom Line
Investors looking to diversify their portfolios given tariff-driven volatility and global uncertainty may want to take a look at some newly minted active ETFs, including HFGM, BFRE, and RCGE. Depending on your investment goals and personal values, these strategies may offer a unique alternative to passively managed global or international funds and be worthy of inclusion in your portfolio.
1 MIT (March 2019). Study: Democracy fosters economic growth
2 S&P Global (October 2019). When Women Lead, Firms Win
