International stocks are perking up this year. The MSCI ACWI ex USA Index is higher by 8.92% year-to-date, representing an advantage of nearly 70 basis points over the S&P 500.
Even with the strength being displayed by international equities through the first four months of 2023, the asset class remains attractively valued. That could be a sign of opportunity with exchange traded funds such as the Calvert International Responsible Index ETF (CVIE). CVIE, which debuted in late January, provides international equity exposure with an environmental, social, and governance (ESG) overlay.
While CVIE is obviously a rookie ETF, it could be a well-timed addition to the international equity ETF fray because more market participants are revisiting ex-US stocks, and many want to pair that exposure with ESG advantages.
“International stocks have roared back with U.S. stocks this year, but the view from the Morningstar Investment Conference is that they’re looking exceptionally cheap relative to U.S. stocks right now,” noted Morningstar analyst Katherine Lynch. “When managers were asked whether international stocks would outperform U.S. stocks over the next 10 years, the consensus was that international stocks look more likely to post stronger returns thanks to their lower valuations today.”
CVIE attempts to beat the MSCI World ex-USA Index, meaning the fund can mix developed and emerging-markets equities. From a diversification standpoint, that’s a relevant trait to investors seeking convenience and depth. In other words, thanks to CVIE, investors don’t necessarily need to own a developed markets fund and a separate emerging markets ETF.
That’s potentially beneficial to CVIE investors on multiple fronts. First, emerging-markets equities remain attractively valued. Second, stocks with favorable ESG traits hailing from developing economies reduce risk and can potentially outperform ESG laggards.
Speaking of diversification, that’s another reason to consider international equity ETFs. Professional money managers remain concerned about concentration in major domestic benchmarks. For example, the top five holdings in the S&P 500 combine for approximately 20% of that index’s weight and professional investors say a small number of stocks continue accounting for outsized portions of domestic large-cap returns.
Conversely, concentration risk is significantly less of an issue with international equity ETFs. Specific to CVIE, the fund’s largest holding is Taiwan Semiconductor (TSM) at a weight of just 2.02%. As of April 27, that is the only member of the Calvert ETF’s lineup with an allocation north of 2%.
For more news, information, and analysis, visit the Responsible Investing Channel.
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.