U.S. money managers have been funneling more assets into overseas markets, hoping to capitalize on cheaper valuations. Retail investors can also diversify away from U.S. stocks with international stock exchange traded funds as well.
Krishna Memani, chief investment officer at Oppenheimer Funds Inc., has advised portfolio managers to shift in to Europe, Japan and developing countries like China, Indonesia and India, reports E.S. Browning for the Wall Street Journal.
Other money managers like Dan Morris, global investment strategist at TIAA-CREF Asset Management, has also been moving money abroad. Jack Ablin, chief investment officer at BMO Private Bank, remains positive on Europe. Observers are pointing to the small signs of economic improvement in the Eurozone.
Investors who are seeking to diversify into these areas can utilize region- and country-specific ETFs to capture the developed and emerging markets.
For instance, the Deutsche X-trackers MSCI EMU Hedged Equity ETF (NYSEArca: DBEZ), iShares Currency Hedged MSCI EMU ETF (NYSEArca: HEZU) and WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ) have been popular plays to capture Eurozone equities since the ETFs hedge against a weakening euro currency. Consequently, the hedged-equity ETFs would outperform a non-hedged ETF if the euro currency continues to depreciate. [Time for ETF Investors to Overweight Europe]
Similarly, the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ) and the Deutsche X-trackers MSCI Japan Hedged Equity ETF (NYSEArca: DBJP) offer a hedged-Japanese-yen equity ETF play.
Some argue that as the developed world advances, the countries could help pull up the developing world. Additionally, market players have a more uneven outlook across the emerging markets, cherry picking areas of potential strength. [ETF Investors Should Pick Their BRIC Exposure]
For example, investors can capture Chinese growth through the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (NYSEArca: ASHR), which tracks mainland Chinese A-shares, while the iShares China Large-Cap ETF (NYSEArca: FXI) and SPDR S&P China ETF (NYSEArca: GXC) track Chinese company shares that trade outside of China. The WisdomTree India Earnings Fund (NYSEArca: EPI), iShares India 50 ETF (NasdaqGM: INDY) and PowerShares India Portfolio (NYSEArca: PIN) provide exposure to India’s markets. Lastly, the iShares MSCI Indonesia ETF (NYSEArca: EIDO) and Market Vectors Indonesia Index ETF (NYSEArca: IDX) both track Indonesia.
However, the China, India and Indonesia country-specific ETFs do not hedge currency risk, so a strong U.S. dollar or weaker foreign currencies could slightly depress overall returns.
Moreover, money managers point out that overseas valuations look more attractive than the U.S. especially as U.S. equities trade at record highs. Ablin calculates that the S&P 500 is more than 20% above its median price-to-sales ratio going back to 1998, whereas advanced foreign markets, like Europe and Japan, are only 2.2% above their historical medians. Meanwhile, developing-country stocks are 7% below their median. [Japan ETFs: Rising Suns, Attractive Valuations]
For more information on the international markets, visit our global ETFs category.
Max Chen contributed to this article.