Editor’s Note: A popular television ad from Progressive Insurance features several adults trying to define “the economy” to an adolescent boy: “What is the economy? Where do we start? What isn’t the economy? It is, uh, so many things…”

The confused child wisely replies, “I’ll just look it up.”

Another Way to Look at the Economy

What happens financially in the United States gets a lot of attention, and for good reason. It is by far the world’s largest economy, generating $27.7 billion of gross domestic product (GDP) in 2023.

Only China comes close, with $17.8 billion of GDP that year. After that, Germany ($4.5 billion), Japan ($4.2 billion), and India ($3.6 billion) round out the top five.

Here’s another way of looking at it; the combined GDPs of the USA and China ($45.5 billion) is greater than the cumulative GDPs of the next 45 countries on the list!

However, those rankings do not take into account the population size of each country. On a per capital basis, Ireland topped the list at $103,888 of GDP in 2023 with Switzerland number two at $99,565.

If you’re wondering where the USA falls on that list, its per capita GDP of $82,769 ranks fifth behind Norway ($87,925) and Singapore ($84,734).

Size Isn’t Everything

From an investment perspective, the size of nation’s GDP is critically important. It is difficult for countries with small economies to compete in industries that require a substantial investment in infrastructure.

Also, the growth trend of a nation’s GDP is equally important when considering where to invest. For example, Japan’s large economy has been stagnant for decades, resulting in very little growth in its stock market.

From its inception in 1996 to the end of 2024, the iShares MSCI Japan ETF (NYSE: EWJ) gained no ground. Earning a zero percent return over a 28-year period is not a good use of your money.

For both those reasons, there is a “sweet spot” for investing overseas consisting of nations with economies large enough to compete on a global scale and on an upward growth curve.

Hopefully, the US economy will continue to expand this year despite whatever challenges come its way. But if you are looking to hedge your investment portfolio from a geographic perspective just in case our economy stalls out for a while, here are an exchange-traded fund (ETF) to consider.

VanEck Africa Index ETF

According to the World Population Review, the continent with the fastest growing economies last year was Africa. Its top ten list of countries with the fastest GDP growth rates includes Niger (11.1%), Senegal (8.8%), Libya (7.5%), Rwanda (7.0%), Ivory Coast (6.6%), and Burkina Faso (6.4%).

I don’t recommend investing directly in any of those countries individually since their economies are so small. Instead, I suggest owning shares of the VanEck Africa Index ETF (NYSE: AFK) as a diversified play on the entire continent.

This fund’s objective is to “replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS^® GDP Africa Index (MVAFKTR), which includes local listings of companies that are incorporated in Africa and listings of companies incorporated outside of Africa but that have at least 50% of their revenues/related assets in Africa.”

As you might expect, South Africa is the single largest country represented in the portfolio at nearly 35 percent of total assets. Morocco is second at more than 15 percent of assets.

From a sector perspective, Financials comprise the biggest sleeve of the fund at nearly 38 percent of total assets. Materials is next at 28 percent, with communication services in third at 15 percent.

After peaking near $23 four years ago, AFK gradually receded below $13 a year ago. Since then, it has rallied above $16 but has been stuck in a trading range for the past six months (boxed area in chart below).

Avoiding the Trade War

To be sure, economic growth in Africa is more cyclical than in more developed countries. That’s because its economy is more reliant on industrial activities such as mining and construction.

For that reason, this fund is more vulnerable to global recessions since it lacks a strong services component to stabilize performance. But if you can live with that and have a long-term perspective, then it should provide an effective hedge against trade tariffs and other impediments to economic growth currently embroiling the United States and its major trade partners.