For three years now, international exchange traded funds (ETFs) have outperformed every domestic benchmark. Jonathon Bernstein of ETF Zone.com reviews reasons for the popularity of international ETFs.
International ETFs have returned quite a bit of alpha, a measure of market outperfomance. Take a look at iShares MSCI EAFE (EFA) compared to the SPDR (SPY). The return for EFA over the last three years is 19.3% (annualized) versus SPY’s 9.4%. The reasons for this outperformance include a weaker dollar, natural resource boom and the emergence of India and China.
With international ETFs, investors can easily diversify their portfolio across the globe. Once a difficult arena to participate in, international investing has become mainstream due to ETFs.
Volatility reduction is another reason for investing internationally, as historically it has added protection from market risk. While there is some protection from market risk, ETFs that invest internationally have been highly correlated to domestic funds in recent downturns. As with any investing, there are risks involved and one should review their tolerance for risk, but they must also review their financial goals and the possibility of adding international exposure.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.