Investing in the global recovery through ETFs

Barclays Capital has launched a fund that gives investors a chance at participating in the global recovery pie by riding on the wave of fiscal stimulus packages announced in the last year by various governments around the world.

The newly launched Global Stimulus Fund Portfolio will invest in a diversified pool of exchange traded funds (ETFs) and index funds traded on global stock exchanges, covering sectors expected to appreciate in the long term such as infrastructure, financial, healthcare and energy.

The use of low-cost ETFs and index funds means that the annual management fee is 0.7% compared to the 1.5% to 2% charged by other traditional asset managed funds in the market, while upfront sales charges are pegged at up to a maximum of 5%.

GLOBAL STIMULUS FUND PORTFOLIO: Initial list of ETFs & their weightings

The Global Stimulus Fund will also invest in Asia-focused ETFs as it sees the region as one of the world’s fastest recovery markets, led by strong gross domestic groduct (GDP) growth in key markets such as China, India and Indonesia which will be equally weighted at 19% each for now.

The portfolio has also allocated 5% in gold as a hedge against rising inflation and to provide safe haven against key currency movements and other crises.

Tan Yong Sheng, Director of Investor Solutions at Barclays Capital said, "The Global Stimulus Fund represents a unique proposition for the investor who wants to take advantage of the global recovery in economies worldwide through exposure to a broad-based fund with a diversified portfolio risk".

Following the financial crisis last year, the United States, for example unveiled a US$787 billion package to save more than 1 million jobs, while closer to home, the Chinese government has parlayed some four trillion yuan (US$586 billion) to be spent on upgrading infrastructure, raising rural incomes and on social welfare projects among others.

"As of now, less than 50% of these monies have been spent, and these will take two to three years to take effect in the global economy", noted Mr Tan.

He added that based on its macroeconomic research, Barclays Capital is sufficiently confident that global recovery is well underway with global growth expected weigh in at about 4% from the third quarter of this year to the first quarter of 2010.

Should there be any recovery cycle changes moving forward, Mr Tan said that the fund's investment managers would have the mandate to switch the sector weightings including cash holdings.

Explaining its focus on ETFs, Mr Tan said that ETFs generally provide continuous liquidity to investors and transparent pricing, diversified asset holdings within and across asset classes.

An ETF trades an index, commodity or basket of assets but trades like a stock on an exchange, experiencing price changes during the day just like a regular stock as it is bought or sold.

"The market is changing and investors are trying to be more self-directed these days. This fund offers a low-cost approach which allows them to take advantage of liquidity of ETFs", said Mr Tan.

Barclay's Global Stimulus Fund also gives investors looking to invest in global markets versus single market only or region-focused funds, at the same time, giving them some exposure to commodities via the energy sector as well as gold equity ETFs.

According to a news report in the Financial Times this August, quoting Barclays Global Investors, the partial rebound in equities markets and a strong demand for passive investment have driven assets invested in exchange traded funds worldwide to a record high of €601 billion (US$862 billion).

Here in Singapore, the closest comparison of such Barclay’s offer on the market is DBS Asset Management's MyHome Growth fund, which invests into 2 ETFs – the DBS Singapore STI ETF and ABF Singapore Bond Index Fund.

Some RM$25 million has already been raised from OSK-UOB Global Stimulus Fund – launched earlier in September, which similarly taps on the recovery theme in Malaysia, said Barclays' Mr Tan, who is confident that this bodes well for the newly launched Fund.

The Fund is available to investors in Singapore dollar, Aussie dollar and US dollar classes. The minimum initial outlay is $1000 per respective currency. The offer period ends on November 13 and trading starts on November 23, 2009. The fund distributed is exclusively by Citibank till November 13, after which it will be more widely marketed through other distributors.

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