U.S. stocks are scuffling to start 2018, but even with the S&P 500’s recent struggles, the benchmark U.S. equity gauge is not attractively valued relative to historical norms.
“The S&P 500 ended January at nearly 23 times trailing earnings. Outside of the immediate aftermath of the financial crisis, when earnings were depressed, this is the highest multiple since the early 2000s,” said BlackRock in a recent note. “Even after the recent correction, you would struggle to characterize U.S. stocks as cheap. The S&P 500 is still trading at 21 times trailing earnings, approximately 20% above the post-crisis norm.”
So where are compelling valuations hidden?
Investors looking for attractively valued stocks may want to consider ex-US developed markets, available via a plethora of exchange traded funds, including the popular iShares Core MSCI EAFE ETF (CBOE: IEFA).
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IEFA holds over 2,500 stocks with over half the ETF’s combined geographic weight dedicated to Japan, the U.K. and France. Overall, 16 countries are represented in the ETF. Eleven of those countries are European nations.
Torrid Asset-Gathering in Emerging Markets
After being one of last year’s top asset-gathering ETFs, IEFA is continuing its torrid pace of asset adding this year. As of April 11th, investors had added about $14.8 billion in new capital to IEFA this year, more than double the amount that has flowed to second-best asset-gathering ETF, the iShares Core MSCI Emerging Markets ETF (NYSEARCA: IEMG).
“For investors inclined to add during the current weakness, focus on non-U.S. equities, which are more reasonably valued,” said BlackRock. “Developed markets outside the U.S., as tracked by the MSCI ACWI-ex U.S. Index, is trading for roughly 15 times trailing earnings, the cheapest since late ’15. Right now with the U.S. being still the most expensive market and the epicenter of uncertainty, non-U.S. equities offer better value, and perhaps better protection.”
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IEFA devotes about 35% of its weight to financial services and industrial stocks. Consumer discretionary and consumer staples names combine for 23.3%. IEFA is up 0.56% year-to-date while the S&P is slightly lower.
For more information on the ETF market, visit our ETF performance reports category.