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There's another boom and trend that is packaged inside the strong growth of ETFs: the rise of "Global Play" ETFs. By "Global Play" we mean the growing segment of investments that offer exposure to the growth of the global economy, not just the US economy.

This includes several types of investments often referred to as separate asset classes, but which in fact are entirely intertwined and interdependent:

"Global Play" = emerging markets + developed (international) markets + global sector plays + commodities/metals + energy + currencies + macro/interest rate plays

With assets in developed and emerging markets ETFs topping $200 billion in total assets and growing by $80.3 billion in 2009, this is becoming an increasingly important piece of the ETF boom.

In an environment of a declining dollar, high unemployment, a continuing recession, and a stagnant US equity market relative to the rest of the world, investors everywhere are finally understanding the need to look outside the US for ways to diversify their portfolios to mitigate their risks and seek out new opportunities for growth. Investing in any international market these days requires understanding that country's sector allocation, its exports and natural resources, the strength of its currency, and its political stability and economic growth picture. In an era of globalization there is no pure "decoupling" -- all these sectors of the global economy are interconnected.

This awareness translates into an increasing preference amongst retail and institutional investors alike for ETFs as the easy way to get exposure to global growth. Setting up brokerage operations to buy foreign ordinary stocks listed on exchanges within emerging markets or trade forex or buy NYMEX crude oil futures is too cumbersome for most retail investors to even try. ADRs only offer access to a sliver of all the great companies in the world. Mutual funds are seen by many as too costly. ETFs, however, offer a cheap vehicle to get exposure to global plays that can be bought and sold throughout the day through any ordinary US brokerage.

At "Inside ETFs", we learned about the exciting launch of a number of new Global Play ETFs, to add to the already-popular line-up of emerging markets and developed markets ETFs offered by iShares, Vanguard, PowerShares, SPDR, Claymore and others:

  • Global Sector Plays:
    • Emerging Global Shares is offering easy ways to play the entire global financials (EFN), oil & gas (EEO), and metals & mining (EMT) sectors, as well as top 100 companies in emerging markets sectors overall (EG), with global sector funds for materials, consumer goods, healthcare, technology, and other sectors coming soon
  • Energy and Natural Resources:
    • ALPS Funds has an array of plays on global commodities (CRBQ), global agriculture (CRBA), metals (CRBI), crude oil futures (spot contract USO, 12-month futures USL), natural gas futures (spot UNG, 12-month UNL), gasoline futures (UGA), and heating oil futures (UHN), as well as a broad-based commodities fund (GCC);
    • Van Eck's Market Vectors offers access to plays on Coal (KOL), Gold (GDX, GDXJ), Nuclear (NLR), Steel (SLX), Solar (KWT), global alternative energy (GEX), and of course, Agribusiness (MOO);
    • Index IQ global resources ETF (GRES) tracks global companies operating in commodity-specific segments like livestock, precious metals, grains, timber, coal and water
  • Metals:
    • ETF Securities provides ways to play Platinum (PPLT), Silver (SIVR), Gold (SGOL), and Palladium (PALL)
  • New Targeted-Country Plays:
    • Market Vectors goes deep into the emerging markets where others don't venture, offering easy exposure to Russia (RSX), Brazil Small-cap (BRF), Africa (AFK), Gulf States (MES), Indonesia (IDX), Poland (PLND), and Vietnam (VNM)
    • Claymore recently launched a China Technology Sector ETF (CQQQ) and a China All-Cap fund (YAO)
  • New Emerging Markets Plays:
    • Old Mutual's Global Shares recently launched a new ETF tracking the FTSE Emerging Markets index (GSR) to compete with the large iShares MSCI Emerging Markets ETF (EEM)
    • Charles Schwab has a new large/mid-cap developed market ETF (SCHF), small-cap developed (SCHC), and Emerging Markets (SCHE)
  • Leveraged International:
    • Direxion Shares offers 3x leveraged bull/bear ways to play China (CZM), (CZI), Latin America (LBJ), (LHB), EAFE (DZK), (DPK), and Emerging Markets (EDC), (EDZ);
    • ProShares offers 2x leveraged bull/bear plays too for China (XPP), (FXP), EAFE (EFO), (EFU), Emerging Markets (EET), (EEV), Japan (EZJ), (EWV), Europe (EPV), Brazil (BZQ) and Mexico (SMK)
  • Macroeconomic Plays:
    • Index IQ opens up hedge fund matched performance for any investor through their macro-strategy (MCRO) and inflation hedging (CPI) ETFs
  • Currencies
    • WisdomTree launched an ETF that lets you track a basket of Emerging Market currencies (CEW) and they offer ETFs to play on the Chinese Yuan (CYB), New Zealand Dollar (BNZ), Brazilian Real (BZF), Indian Rupee (ICN) and the South African Rand (SZR)

As the wedge deepens between the stagnant US economy and strong growth outside the US, investors now have a diverse set of ways to benefit from global growth. 2010 should prove to be another year of billions piling into Global Play ETFs.

Originally posted on January 22, 2010

Source: The Rise of Global Play ETFs