Is it time to invest abroad? The U.S. stock market remains robust even despite so much hemming and hawing entering 2024. Potential rate cuts appeal too, of course. However, whether a soft landing hits or not, diversification matters. The U.S. economy appears robust, yes, but investing in U.S. stocks remains expensive. International equities ETFs present different ways to invest abroad to seek that diversification and some potential returns, too.
See more: Beyond Index Investing – Seeking Enhanced Outcomes Through Large Cap ETF FELC
Fidelity Investments offers several international equities ETFs that may appeal, for example. That group of strategies ranges from active to passive ETFs with a variety of investment approaches.
The Fidelity Enhanced International ETF (FENI)
Generally, active ETFs had a strong 2023, and have potential in 2024 as well. FENI stands out among the firm’s international equities ETFs for its active approach. The strategy has been available since 2007 but converted from a mutual fund to the ETF structure in November, along with five other strategies in Fidelity’s Enhanced Equity ETF suite. FENI charges a 28 basis point (bps) fee for its active investing strategy.
FENI invests mainly in stocks in the MSCI EAFE index, a market-cap weighted index comprised of large and midcap companies in developed market countries, excluding the U.S. and Canada. Its active approach deploys a disciplined investment process to provide core equity exposure similar to the index while seeking outperformance. The stock selection process emphasizes traditional factors like quality, growth, momentum, and valuation, but also incorporates nontraditional factors, such as options market data, to provide a more complete evaluation of a securities excess return potential. That approach has helped FENI return 11% over the last three months per VettaFi data as of March 4.
Why an active ETF to invest abroad? Whereas a passive ETF sticks to the rules of its index, active managers can identify securities with the potential to outperform the index while avoiding names that would bring unnecessary risk to the portfolio. What’s more, this hands-on approach provides active ETFs with the flexibility to capitalize on opportunities that arise during periods of market volatility.
The Fidelity International Value Factor ETF (FIVA)
Active investing offers potential benefits when investing abroad, but how about a style like value? Investing abroad may benefit from value, specifically. A value approach looks for firms that the market may have mispriced, or that may offer a bargain. Compared to a standard index, a value index’s emphasis on those factors can look across a broad group of markets to find the biggest market misunderstandings.
FIVA, which charges 18 bps, seeks to track the Fidelity® International Value Factor Index, which includes mid- and large-cap developed stocks outside the U.S. Its factor exposure makes it an intriguing satellite play, having returned 13.4% over the last one-year period as of March 4th per VettaFi data.
The Fidelity International High Dividend ETF (FIDI)
Like FIVA, FIDI presents a factor approach to international equities. However, instead of value, it looks for large and mid-cap stocks in its stock universe with high dividends for an 18 bp fee.
Not only does looking for dividends potentially boost investor portfolios with current income, but it may also reduce portfolio volatility, as the income received from dividends may provide a steadier return profile.
Dividends, however, provide a powerful signal about a firm’s health. In addition to evaluating stocks based on dividend yield, FIDI’s index also considers firms’ dividend growth and payout ratios. By including these measures, FIDI may identify companies that not only offer attractive yields but are also likely to grow their dividends in a sustainable manner. This approach has helped it return 13% over the last one year per VettaFi data as of March 4.
Taken together, the three international equities ETFs present some appealing ways to seek diversification and potential alpha.
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Fidelity Investments® is an independent company, unaffiliated with VettaFi. There is no form of legal partnership, agency affiliation, or similar relationship between VettaFi and Fidelity Investments, nor is such a relationship created or implied by the information herein. Fidelity Investments has not been involved with the preparation of the content supplied by VettaFi. They do not guarantee, or assume any responsibility for its content.
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