International equities, both developed and emerging markets, are getting plenty of attention as attractive asset classes for 2021, but getting international exposure just right can be a tricky task for some asset allocators.
The WisdomTree Developed International Multi-Factor Model Portfolio is a clean, effective approach to international equity exposure.
“This model portfolio is designed for investors with a long-term horizon looking for exposure to a broad universe of Developed International equities primarily using factor focused ETFs,” according to WisdomTree. “The selected ETFs provide certain factor tilts that have the potential to generate excess return relative to comparable cap-weighted benchmarks over longer-term holding periods. The strategies may use both WisdomTree and non-WisdomTree ETFs.”
The model portfolio could be a winning strategy in 2021.
“Another factor in favor of foreign stocks, especially for dividend-hungry investors, is that yields tend to be a little higher, and there are simply some great companies domiciled outside of the U.S. So, those are some reasons that you want to stick tight, but I know it has been a pretty trying period,” notes Morningstar analyst Christine Benz.
Right Idea, Right Now
Getting international exposure is a typical way to get uncorrelated market movements relative to the United States, but at a time when a pandemic has the whole world in its grasp, it becomes a quandary. That’s when it’s time to get smart as in smart beta with multi-factor strategies used in ETFs featured in WisdomTree’s model portfolio.
Owing to the Federal Reserve’s move to take interest rates to record lows, the U.S. dollar is sagging this year. Greenback weakness doesn’t spell trouble for investors considering international equities.
“Many investors obviously have been inclined to sit tight with their U.S. stock holdings because they have outperformed,” notes Benz. “If you haven’t taken a look at this recently, you may want to do a little bit of adjustment. You may not want to change your overall equity exposure, but take a look at that geographic exposure because many investors’ foreign stock allocations probably could use some topping up.”
The improved economic conditions have also translated to better earnings expectations for these international markets. According to FactSet data, earnings for companies in the MSCI Emerging Markets Index will fall less than earnings for companies in the S&P 500 index for 2020. Emerging-markets earnings are even expected to rebound more than U.S. earnings in 2021. Overseas developed-market earnings are anticipated to bounce back further than U.S. profits next year as well.
For more on how to implement model portfolios, visit our Model Portfolio 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.