By John Wasik
CHICAGO, Dec 9 (Reuters) - There is a growing consensus thatU.S. stocks, as well as stocks around the world, are going tocatch a tailwind going into 2014.
Expanding economies and continued central-bank stimulus arethe bellows behind this expected growth. If you do not haveinternational stock exposure, now is the time to broaden yourportfolio with these three exchange-traded funds (ETFs).
One of the best vehicles to grab growth around the world isa global stock ETF. The Vanguard Total World Stock Index ETF owns more than 5,000 stocks, but has its top holdings inmega-cap American companies like Apple Inc, Exxon MobilCorp and Google Inc.
The Vanguard fund is up 22 percent for the year though Dec.6 and has beaten a world stock benchmark by about 2 percentagepoints over the past three and five years. The fund charges 0.19percent for annual expenses.
If you do not want a portfolio dominated by U.S. blue chips,then consider the iShares MSCI Emerging Markets Index ETF. The fund invests in an index of companies in developingnations and holds stocks like Samsung Electronics Co Ltd , Taiwan Semiconductor Manufacturing Co andChina Mobile Ltd.
Charging 0.69 percent for annual expenses, the iShares fundis up 0.21 percent for the year through Dec. 6 and has averagedmore than 15 percent annually over the past half-decade.
For a more Euro-centered focus, consider the Vanguard FTSEEurope ETF, which owns established European companiessuch as Nestle SA, HSBC Holdings PLC andRoche Holding AG. The fund has gained nearly 23 percentfor the past year through Dec. 6 and charges 0.12 percentannually for expenses.
THE GROWTH OUTLOOK
Although recovery has been sluggish since the financialmeltdown of 2008, economies in the United States and abroad seemfinally to have found solid footing.
According to S&P Capital IQ, "the global expansion is seenramping up as 2014 progresses, with growth forecast to reach 3percent by the fourth quarter, up from 2.6 percent in the firstquarter."
Some of the bright spots include Europe and China. Anaggressive stimulus policy by the European Central Bank hasbuoyed some of the hardest-hit economies, such as those ofSpain, Italy and Greece. Fears that the Euro Zone would buckleproved premature.
The European Central Bank, echoing the U.S. FederalReserve's post-2008 actions, lowered its benchmark rate to 0.25percent recently. The Euro Zone economy is also aided by lowinflation, running under 1 percent annually.
There is even an argument that European stocks areundervalued relative to the United States, according to StarMineanalytics, a Thomson Reuters unit. While U.S. companies havebenefited from a slowly growing economy, increasing employment,low inflation and interest rates, the Euro Zone is just nowclimbing out of recession. There may be more bargains relativeto the U.S. market.
In China, where many analysts had feared a "hard landing" asgrowth slowed, the country's economic growth rose, expanding ata 7.8 percent clip in the third quarter - up from 7.5 percent inthe second quarter. The country is expected to lead all worldeconomies at a forecast 7.4 percent growth rate in 2014.
Despite the improving economic climate abroad, all eyes willbe watching the Fed in Washington. When will the central bankpull back its $85 billion-a-month bond buying program? That willdepend upon how much U.S. employment improves; the Fed has set abenchmark of a 6.5 percent unemployment rate as a trigger forpossible changes.
With the job market improving - as witnessed in Friday's employment report for the month of November -traders are nervous that the Fed will ease off its stimulusprogram, which has partially fueled the stock rally.
The Fed's eventual braking of its stimulus plan would likelyraise the value of the dollar on foreign exchanges, which wouldhurt the shares of non-U.S. stocks denominated in foreigncurrencies, which is a perennial risk. That could also spark awithdrawal of investment in developing markets.
An even greater risk, according to Bill Gross, managingdirector of PIMCO, which manages nearly $2 trillion, is that"overlevered economies and their financial markets must at somepoint pay a price, experience a haircut, and flush confidentinvestors from the comfort of this Great Moderation Part II," hewrote in his most recent PIMCO newsletter.
Until that happens, profit growth in the United States andabroad will propel continued stock price gains. That is why itstill makes sense to have at least 30 to 40 percent of yourstock holdings in non-U.S. stocks.
HSBC Holdings (HSBA)