Rob Carrick’s 2022 ETF Buyer’s Guide: Best international & global equity funds (2024)

The weakest performing equity fund in your ETF portfolio could be the one that requires the most attention to keep costs low.

While returns from the Canadian and U.S. stock markets were exceptional over the past 12 months, the international equity funds in the 2022 Globe and Mail ETF Buyer’s Guide produced an average gain of a bit under 2 per cent.

Exchange-traded funds holding stocks from outside North America have management expense ratios that are well above Canadian and U.S. equity funds – that’s just how they roll. But there’s an additional cost element that requires particular scrutiny from investors. It’s the trading expense ratio, or TER, which measures the cost incurred by an ETF’s managers to keep the portfolio in line with the underlying index or stock-screening process.

TERs are a bigger deal in international funds than in any other category in this guide. Make sure you keep an eye on them as you compare the nine funds covered here. You’ll find a mix of four international funds and five global funds, the latter which include the United States but not Canada.

Suggestion for your own research on prospective international and global ETFs: Consult the latest management report of fund performance, available in online fund profiles published by all ETF companies, to track TERs over the past five years. Some companies consistently keep their TERs at or close to zero, while others can be notably higher.

Other key differentiators the guide can help you with are exposure to small and mid-size stocks as well as big international names such as Nestlé, Novartis and Toyota (top 10 holdings in many of these funds), sector weightings and weightings in emerging markets and U.S. stocks. You’ll notice in the guide that global funds, with their heavy U.S. weightings, did much better than international funds in the past year.

All funds presented here are core funds, which means they’re suitable as your one and only international or global fund. Many of these funds come in versions with and without currency hedging, which mutes the effect of fluctuations in the value of our dollar on returns. Unhedged funds are more popular and thus are the focus in this edition of the ETF guide.

It’s widely thought that hedging is unnecessary if you’re a long-term investor, but hedged funds performed better over the past year. With hedging, your returns from non-Canadian stocks won’t be undermined when our dollar rises, nor will they be enhanced when the dollar falls. Unhedged funds do better when our dollar is falling and lag when the dollar rises.

For the tax implications of holding funds in a non-registered account, consult our ETF tax primer (tgam.ca/ETF-tax-primer).

Here’s a look at the investing terms used in the ETF Buyer’s Guide:

Assets: Shown to give you a sense of how interested other investors are in a fund.

Management expense ratio (MER): The main cost of owning an ETF on a continuing basis; published returns are shown on an after-fee basis. The other cost component is the TER.

Yield: An annualized number based on the latest dividend payout.

Distribution frequency: Some international funds pay dividends on a semi-annual basis, which means they’re not ideal for income-seeking investors who want regular income payments.

Number of holdings: Gives you an indication of whether a fund offers broad stock market coverage, or holds a more concentrated portfolio that may behave differently than benchmark indexes.

Sector weightings: Included to help you verify how well a global or international equity ETF will diversify your Canadian holdings with exposure to sectors such as tech and health care.

Beta: A measure of volatility that compares funds with a benchmark stock index, which always has a beta of one. A lower beta means less volatility on both the up and down side. Beta offers a chance to see how well low-volatility ETFs deliver.

Launch date: The older an ETF is, the more likely it is that you can look back at a history of returns through good markets and bad.