There are numerous index funds that are tied to specific sectors, countries or themes. They may look diversified on the surface, but if that sector falls out of favor or that country experiences a lost decade, you could be underwater for years – sometimes decades. Even the most disciplined “diamond hand” investor will struggle to get through such a stagnation.
That’s why the only type of index fund I could really hold through thick and thin is a globally diversified fund that covers all eleven sectors and multiple regions. If one country or sector is struggling, another country or sector can pick up the problem.
Few options do that as neatly as Vanguard FTSE Global All Cap ex Canada Index ETF (TSX:VXC).
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What is VXC?
VXC is designed to track the performance of the global stock market through the FTSE Global All Cap ex Canada China A Inclusion Index.
It owns thousands of stocks in developed and emerging markets. That includes the United States, Europe, Japan, Australia and fast-growing economies such as India and Brazil.
The portfolio covers all 11 Global Industry Classification Standard sectors, including technology, healthcare, communications, consumer discretionary, utilities, financial services, energy, consumer staples, real estate, materials and industrials.
Because Canada is excluded, there is no overlap with typical Canadian core interests such as banks, pipelines, railways and telecom companies. The fund is market capitalization weighted, meaning larger, global companies have more influence.
The management expense ratio for the global exposure is low, at around 0.22%, which is reasonable given the breadth of markets covered.
Why VXC?
Most Canadians are already overweight domestic stocks in their portfolios, especially dividend payers. Canada represents roughly 3% of the global stock market, yet it is common to see portfolios allocated 25%, 50% or even more to Canadian companies.
Add to that the labor income associated with the Canadian economy and perhaps a home as a major asset, and many investors are more concentrated than they realize. VXC solves that problem neatly.
It offers no overlap with Canadian stocks, allowing you to dial in your desired domestic allocation separately. You can continue stock picking in Canada if you enjoy it. But VXC acts as a diversified global base underneath it all.
It also reduces the risk of a country’s economic cycle dictating your long-term results. If Canada lags while the US or emerging markets outperform, you’re in. If American technology slows while European industry recovers, you are still vulnerable.
If I had to pick one index fund to hold through market cycles, sector rotations, and geopolitical shifts, it would be a globally diversified fund like VXC, not because it will always outperform, but because it is built to survive almost anything if you hold it long enough.
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