For long-term investors, diversification is often advantageous with domestic equities. That principle holds true with international stocks.
The WisdomTree Developed International Multi-Factor Model Portfolio offers advisors an effective way to position client portfolios for more upside in internationally developed markets with ample diversification.
“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.”
With valuations compelling, there are multiple reasons why this WisdomTree model portfolio is attractive in the current environment.
“Adding international exposure is one of the first steps toward a diversified portfolio. Even minimalist investors usually carve out a portion of their portfolios for non-U.S. stocks after adding exposure to domestic stocks and bonds,” writes Morningstar analyst Amy Arnott. “International stocks are subject to myriad factors that can lead to divergent performance, including local market conditions, currency movements, exposure to different sectors and industries, and political and economic factors. These traits mean they often show different performance patterns–both relative to the U.S. market and versus other international markets.”
Admirable Allocations with this Model Portfolio
Getting international exposure is a great way to pull in uncorrelated market movements. But at a time when a pandemic has the whole world in its grasp, it becomes quite the challenge. Fortunately, smart beta multi-factor strategies used in ETFs featured in WisdomTree’s model portfolio can rise to the challenge.
Many ex-US markets are considered value destinations. The WisdomTree portfolio offers quality/value tilts with several of its components holdings. Diversification is increasingly important when considering the state of international equity correlations to other markets, including the U.S.
“With the novel coronavirus pandemic affecting economies, companies, industries, and people on a global scale, most major international markets dropped at least as much as the U.S. market in early 2020,” notes Arnott. “Japan was the only major regional market to maintain a lower correlation with the United States. It also suffered lighter losses than most other global markets.”
Some international funds are outpacing the S&P 500, with analysts noting the good feelings that come from the leadership changes. There are things such as movement in cyclicals, which is good for internationals, and some strategic plays as far as the overperforming tech giants.
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.