International ETF Options for Australian Investors: US, Global, and Emerging Markets
Australian investors have historically had a strong home bias, but international diversification is crucial for building robust investment portfolios. The Australian share market represents less than 2% of global market capitalisation, meaning investors who only invest domestically miss out on the vast majority of global investment opportunities.
In this guide, we'll explore the best international ETFs available to Australian investors, covering US markets, global developed markets, and emerging markets.
Why International Diversification Matters
International diversification offers several key benefits:
- Geographic diversification: Reduces country-specific risks
- Sector diversification: Access to industries underrepresented in Australia
- Currency diversification: Exposure to multiple currencies
- Growth opportunities: Access to faster-growing economies and markets
- Risk reduction: Spreading investments across multiple markets
US Market ETFs
The United States represents the world's largest stock market and offers Australian investors access to some of the world's leading companies. Here are the top US-focused ETFs:
US Market ETFs
| ETF | Name | Fee | FUM | 1-Year Return |
|---|---|---|---|---|
| VGS | Vanguard MSCI Index International Shares ETF | 0.18% | $14.0B | 16.79% |
| IVV | iShares S&P 500 ETF | 0.04% | $13.2B | 14.69% |
| QUAL | VanEck MSCI International Quality ETF | 0.40% | $8.0B | 11.45% |
| NDQ | Betashares NASDAQ 100 ETF | 0.48% | $7.7B | 21.39% |
| VTS | Vanguard US Total Market Shares Index ETF | 0.03% | $6.5B | 13.48% |
US market ETFs typically track indices like the S&P 500 (500 largest US companies) or broader indices covering the entire US market. These ETFs provide exposure to technology giants, healthcare leaders, and other sectors that are underrepresented in the Australian market.
Global Ex-Australia ETFs
For broader international exposure, global ex-Australia ETFs provide access to developed markets worldwide:
Global Ex-Australia ETFs
| ETF | Name | Fee | FUM | 1-Year Return |
|---|---|---|---|---|
| VDHG | Vanguard Diversified High Growth Index ETF | 0.27% | $3.5B | 11.89% |
These ETFs typically include companies from developed markets like the US, Europe, Japan, and other developed economies, excluding Australia. This provides comprehensive international diversification while maintaining exposure to stable, developed markets.
Emerging Markets ETFs
Emerging markets offer exposure to faster-growing economies, though with higher volatility:
Emerging Markets ETFs
| ETF | Name | Fee | FUM |
|---|---|---|---|
| VEU | Vanguard All-World ex US Shares Index ETF | 0.04% | $5.1B |
Emerging markets ETFs typically include companies from countries like China, India, Brazil, and other developing economies. These can offer higher growth potential but come with increased risk and volatility.
Geographic Exposure Comparison
Understanding the geographic breakdown of international ETFs helps you build a well-diversified portfolio:
Geographic Exposure Comparison
US Market ETFs:
- IVV: 100.0% US exposure
- NDQ: 100.0% US exposure
- QUAL: 72.5% US exposure
- VGS: 68.5% US exposure
- VTS: 100.0% US exposure
Global Ex-Australia ETFs:
- VDHG: 36.0% Australian exposure
This comparison helps you understand how different ETFs allocate across countries and regions, allowing you to build a portfolio that matches your geographic diversification goals.
Currency Hedging Considerations
One important decision when investing internationally is whether to hedge currency exposure:
Unhedged ETFs:
- Exposure to currency movements
- Can amplify or dampen returns
- Generally lower fees
- More currency diversification
Hedged ETFs:
- Remove currency exposure
- More predictable returns in Australian dollars
- Typically slightly higher fees
- Less currency diversification
The choice between hedged and unhedged depends on your views on currency movements and your risk tolerance. Many investors choose unhedged for long-term holdings, as currency exposure can provide additional diversification.
Building an International Portfolio
When building an international portfolio, consider:
Conservative Approach
- 60% Australian equities
- 30% US equities
- 10% Global ex-Australia
Balanced Approach
- 40% Australian equities
- 40% US equities
- 15% Global developed markets
- 5% Emerging markets
Growth-Oriented Approach
- 30% Australian equities
- 50% US equities (including technology-focused options)
- 15% Global developed markets
- 5% Emerging markets
Tax Implications
Australian investors should be aware of:
- Dividend withholding tax: US and other countries may withhold tax on dividends
- Foreign tax credits: May be available to offset Australian tax
- Capital gains: Treated similarly to Australian shares for tax purposes
- Currency gains/losses: Can affect tax calculations
Always consult with a tax professional to understand how international investments affect your specific tax situation.
Fees and Costs
International ETFs typically have slightly higher fees than Australian-focused ETFs due to:
- Currency conversion costs
- International custody and administration
- More complex index tracking
- Hedging costs (for hedged versions)
However, fees have decreased significantly over time, and many international ETFs offer excellent value.
Performance Considerations
When evaluating international ETFs, consider:
- Long-term performance: Look at 5+ year returns
- Currency impact: Understand how currency movements affect returns
- Market cycles: Different markets perform differently at different times
- Diversification benefits: International exposure can reduce portfolio volatility
Remember that past performance doesn't guarantee future results, and international markets can be volatile.
Conclusion
International ETFs provide Australian investors with essential diversification and access to global investment opportunities. Whether you're interested in US markets, global developed markets, or emerging markets, there are excellent ETF options available.
When selecting international ETFs:
- Consider your geographic diversification goals
- Understand currency hedging options
- Evaluate fees and costs
- Consider tax implications
- Maintain a long-term perspective
- Balance international exposure with Australian holdings
For detailed information on specific international ETFs, visit their individual pages on our website, where you can see geographic exposure, fees, performance data, and more.
Important Disclaimer: The information on this website is general financial advice only and is issued by The Rask Group Pty Ltd. That means, the advice does not take into account your objectives, financial situation or needs. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire any financial product. If you don't know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. Please read our Financial Services Guide before using this website.