Investing experts have long said that market participants should have exposure to international equities — perhaps up to 20% of their portfolios. While that’s practical advice, it worked against investors for a lengthy spell because major international equity benchmarks lagged domestic equivalents for over a decade.
Entering this year, there were expectations that the tide would finally turn in favor of international stocks, which does seem to be happening, albeit in incremental fashion. Year-to-date, the widely followed MSCI World ex-US Index is beating the S&P 500 by 58 basis points.
That’s not a massive gap, but it has potential to grow and spotlight opportunities with exchange traded funds such as the Calvert International Responsible Index ETF (NYSE Arca: CVIE). CVIE follows the Calvert International Responsible Index and debuted in January, making it one of the newest additions to international equity environmental, social, and governance (ESG) ETF space.
CVIE could be an appropriate choice for advisors and investors at a time when capital is flowing to international equity funds and also because valuations in the asset class are attractive. International stocks are one of just three classes of equity funds to attract positive flows this year, with the others being dividend stock and small-cap equity funds. CVIE might offer other points of allure.
“U.S. stocks outperformed their international peers for more than a decade following the 2008 financial crisis, powered by a robust economy and the global dominance of American companies. That run ended last year when concerns about higher interest rates, sticky inflation and an impending recession dragged the S&P 500 down 19%,” reported Vicky De Huang for the Wall Street Journal.
CVIE may have other tailwinds. For example, despite low valuations, international stocks weren’t favored destinations among U.S. asset allocators in 2022 due to rising interest rates, the Russia/Ukraine conflict, and China’s coronavirus restrictions. The latter is now out of the conversation, and it’s widely believed that the number of Federal Reserve rate hikes from here is limited.
Additionally, the aforementioned value proposition offered by CVIE may be too compelling for bargain-hunting investors to ignore.
“Many investors see better value in foreign stocks because they trade at a big discount to their U.S. counterparts. Companies in the S&P 500 are trading at roughly 18 times projected earnings over the next 12 months, according to FactSet. That compares with the Stoxx Europe 600’s multiple of around 13 and the Hong Kong Hang Seng Index’s multiple of about 10 on a local currency basis,” according to the Journal.
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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.