This will go down as another rough year for international stocks relative to domestic equivalents. Putting “rough” into context, as of Dec. 14, the MSCI ACWI ex USA Index is up an admirable 13.6% year-to-date. Problem is that trails by a wide margin the 24.8% returned by the S&P 500.
Said another way, 2023 will be the fifth year in the past seven in which the MSCI ACWI ex USA Index, which includes develop and emerging markets stocks, lagged the S&P 500. In other words, ex-U.S. stocks haven’t been worth the extra perceived risk. Not when domestic stocks are flourishing and certainly not when many international equity gauges are lightly allocated to high-growth sectors.
On the other hand, there remain good reasons to consider international equities and the corresponding exchange traded funds. For example, international stocks and ETFs offer portfolio diversification benefits. Likewise, both developed and emerging markets stocks are inexpensive relative to domestic counterparts. Add to that, many international ETFs offer strong dividend growth prospects and higher yields than equivalent U.S. strategies.
With those favorable factors in mind, here are some international ETFs to consider in 2024.
Calvert International Responsible ETF (CVIE)
The Calvert International Responsible ETF (CVIE) is one of the new entrants to the international environmental, social and governance (ESG) ETF landscape, but just weeks ahead of its first birthday, it’s also one that merits attention.
CVIE’s largest country exposure is Japan and the fund also includes a significant combined allocation to various Eurozone economies – both of which are meaningful traits ahead of 2024. The reason being is that reflation could help the Japanese economy while interest rate cuts by the European Central Bank (ECB) could lift equities in that region.
“When the hawks turn dovish, and as inflation falls to within touching distance, it is reasonable to assume that the ECB will start to cut rates,” noted deVere Group CEO Nigel Green. “A rate cut by the ECB could be expected to inject liquidity into financial markets, leading to a surge in equity prices. International investors could find opportunities for capital appreciation, especially in sectors that are sensitive to interest rates, such as real estate and utilities.”
Schwab International Equity Dividend ETF (SCHY)
The Schwab International Equity Dividend ETF (SCHY) taps into the aforementioned theme of strong yields in ex-U.S. markets. Though it’s more a dividend growth fund than yield play, this international ETF sports a dividend yield of 4.05%, or nearly 200 basis points in excess of the yield found on the MSCI EAFE Index.
Additionally, SCHY has a two-fold value proposition. Many of its holdings can be considered value stocks and its annual fee of 0.14% is inexpensive among international dividend ETFs.
“The resulting portfolio favors stable companies that are likely to maintain their dividend payments. On average, its profitability has been consistently higher than the MSCI ACWI ex USA Value Index, and it has tended to incur less of the market’s risk,” notes Morningstar analyst Daniel Sotiroff. “Despite looking for stocks with higher dividend yields, it does not provide a higher yield than the value side of the market. As of October 2023, its trailing 12-month dividend yield stood at roughly 3.9%, placing it on par with its Morningstar Category index. That said, yield does not play a big role in the portfolio’s overall ability to deliver strong risk-adjusted performance relative to the MSCI ACWI ex USA Value Index.”
VanEck Morningstar International Moat ETF (MOTI)
The VanEck Morningstar International Moat ETF (MOTI) is the international constituent in VanEck’s expansive suite of wide moat ETFs. The $241.66 million fund follows the Morningstar Global ex-U.S. Moat Focus Index, which focuses on attractively international equities with deep competitive advantages.
“Looking outside the U.S., the Morningstar Global ex-US Moat Focus Index (‘International Moat Index’) has separated itself from the international markets in recent periods. It reflects the ethos of Morningstar’s broader moat investing philosophy: invest in quality moat-rated companies that are also trading at attractive prices. This approach has yielded impressive results,” noted Brandon Rakszawski, VanEck director of product management.
MOTI is home to 78 stocks with China, the U.K. and Germany combining for about 48% of the fund’s geographic exposure.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Todd Shriber
Todd Shriber got his start in financial markets as a reporter with Bloomberg News. Later, he became a trader at a Southern California-based long/short hedge fund where he specialized in trading sector and international ETFs leading up to and during the financial crisis. He would later become the web editor at ETF Trends. Currently, he analyzes, researches and writes on ETFs for a variety of Web-based publications and financial services firms.Shriber has been quoted in the Barron's, CNBC.com and the Wall Street Journal. His work has been published on Web sites such as Benzinga, ETF Daily News, ETF Trends, MarketWatch, Fox Business and Nasdaq.com.
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