ETF Investors Can Look Outside of U.S. for Value

After years of standing in the global limelight, U.S. equities may be fading toward the background as international markets step on stage. Investors can also gain exposure to foreign equities through targeted exchange traded fund strategies.

“Equities look attractive on a relative and historical basis outside the U.S.,” Dave Mazza, Head of Beta Solutions Investment Marketing and ETF Specialists for OppenheimerFunds, told ETF Trends in a call.

Mazza explained that the U.S. has been outperforming over the past few years, which has caused many investors to take on a home bias and neglect international exposure.

“Investors remain underallocated outside the U.S.,” Mazza said. “Now is the time to reassess their underallocation to international markets.”

ETF investors interested in gaining international exposure have a number of options to choose from. For instance, OppenheimerFunds recently launched the Oppenheimer Emerging Markets Revenue ETF (NYSEArca: REEM), Oppenheimer Global Revenue ETF (NYSEArca: RGLB) and Oppenheimer International Revenue ETF (NYSEArca: REFA). The ETFs follow the signature revenue-weighted methodology, which weights component holdings based on their trailing 12 month top-line revenue instead of traditional market capitalization, with a maximum 5% portfolio weight for any single issuer.

The global revenue ETFs expands on Oppenheimer’s line of revenue-weighted ETFs, which include the Oppenheimer Large Cap Revenue ETF (NYSEArca: RWL), Oppenheimer Mid Cap Revenue ETF (NYSEArca: RWK) and Oppenheimer Small Cap Revenue ETF (NYSEArca: RWJ).

Mazza was particularly focused on the relative opportunity in the emerging markets where he saw the greatest dislocation in prices. Specifically, Mazza pointed out that emerging market long-term performance versus the U.S. is trading at a 17% discount while emerging markets showed a 6% discount to the EAFE developed markets.

“We have this mismatch in where we find the opportunity set,” Mazza said.

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Looking ahead, fundamentals may continue to support the EM growth story. Analysts anticipate earnings growth among developing markets to rise 19% this year, compared to 10% for U.S. companies. Price-to-earnings ratios also favor the emerging markets, especially with U.S. P/E ratios trading at lofty valuations following the ongoing bull run.

For more information on global markets, visit our global ETFs category.