An Active ETF Strategy to Focus on Growing International Opportunities

Investors should consider the growth opportunities in the international markets and look to an exchange traded fund investment strategy based on bottom-up, fundamental research to build a concentrated portfolio of high-conviction investment ideas.

In the recent webcast, Considering a Rebalance into International Stocks? A Conversation on BNY Mellon’s Concentrated International ETF, Matthew Camuso, ETF strategist at BNY Mellon Investment Management; Tom Quinn, client investment manager at Walter Scott; and Roy Leckie, executive director of investment and client service at Walter Scott, argued that investors can now seek out investment opportunities in international stocks and more attractively priced developed international companies with strong fundamentals and the potential for sustainable earnings growth ahead.

“We believe U.S. investors should have exposure to both the U.S. and International equity markets, i.e., it should not be a case of one or the other,” according to BNY Mellon. “Investing internationally provides exposure to many opportunities that don’t exist in the U.S.”

Additionally, the strategists advised investors to approach the international markets through an active lens that can target select overseas opportunities.

“We believe successful equity investing requires picking the best stocks from a broad opportunity set, irrespective of domicile. Indices are backward-looking,” according to BNY Mellon.

When it comes to growing an investment portfolio, strategists advise investors to stick to equities. Specifically, global equities have exhibited a 6.8% annualized return since 1998, compared to global fixed income’s 2.7% annualized return.

“Historically, equities have been the best asset class for capturing growth and tend to be a reliable hedge against inflation. We believe equities have the best opportunity for long-term wealth generation,” according to BNY Mellon.

The strategists also contended that investors are doing themselves a disservice by focusing too much on domestic markets as the U.S. only makes up a sliver of the global population, about one-fourth of the world GDP, and a little under half of the world’s investable stock market. In addition, global markets look much more attractive from a valuation standpoint relative to U.S. equities – the MSCI World Index is trading at a 16.3x price-to-earnings, compared to the MSCI USA Index’s 18.3x P/E.

Investors too focused on the domestic U.S. markets are missing out on some of the world’s leading growth opportunities. Widening the opportunity set offers a more diversified exposure to some of the long-term trends driving the global economy and access to many world-leading companies with worldwide reach and geographically diverse revenue streams, according to the strategists. For example, the AIA Group is a Hong Kong-based life insurer with a broad presence across Asia, capturing powerful economic and social factors that will continue to drive growth across the company’s core markets. Taiwan Semiconductor is the world’s largest and most profitable producer of semiconductors, providing the necessary chips for E.V.s, smartphones, IoT, and high-performance computing (HPC) that drive ever-increasing long-term demand. Shin-Etsu is a leading chemicals and materials company with an excellent track record and a portfolio of world-class businesses; infrastructure, electronic materials, functional materials, and processing & specialized services.

“We believe U.S. investors can benefit from exposure to both the U.S. and International equity markets,” according to BNY Mellon. “Investing internationally provides exposure to several opportunities that don’t exist in the U.S. Valuation is one of the main factors determining whether global or U.S. stocks are likely to outperform. We believe that successful equity investing requires picking stocks from the global opportunity set, irrespective of domicile.”

Specifically, the actively managed BNY Mellon Concentrated International ETF (BKCI), which is sub-advised by Walter Scott & Partners Limited, a subsidiary of BNY Mellon and a specialist in global equity, offers high concentration into international growth stocks by investing in 25 to 30 companies that exhibit the potential for long-term, sustainable growth.

The ETF is based on disciplined, rigorous, in-house company research following a proprietary process. All proposals are challenged and debated by an experienced and stable investment team. Additionally, the investment methodology follows a buy-and-hold approach focused on sustainable compound growth.

“We believe the interests of all our stakeholders are best served by actively investing in responsibly managed companies capable of sustaining exceptional levels of wealth generation,” according to BNY Mellon.

Financial advisors interested in learning more about international markets can watch the webcast here on demand.