With international stocks delivering in the first quarter and showing signs of a longer-lasting trend, broad approaches such as the WisdomTree Strategic Model Portfolio could serve clients well.
“This model portfolio is designed for growth-oriented investors with a long-term horizon looking to maximize long-term potential for capital growth through a globally diversified set of equity and fixed income ETFs. The model portfolio strives to deliver performance in excess of an 80/20 combination of a broad-based global equity benchmark and a U.S. aggregate bond index,” according to WisdomTree.
A perk of this model portfolio is that spans geographies and market capitalizations, including both developed markets and emerging economies. It’s also levered to some of the sectors leading the ex-U.S. equity resurgence.
“Energy and financials–the hardest-hit sectors in 2020–led the way. The Morningstar Global Energy Index and Morningstar Global Financial Services Index posted the largest gains of 18.8% and 11.1%, respectively, as energy prices recovered from lockdown lows and the yield curve steepened,” notes Morningstar analyst Eric Schultz.
More Model Portfolio Benefits
Stocks in Europe and in international developed markets often have higher yields than those in the U.S. That means it’s possible to take advantage of a dividend growth strategy and relatively high dividend yields. International dividend growth stocks also come without the added U.S. interest rate sensitivity of high dividend-paying stocks.
Ex-U.S. developed market dividend payers often feature larger yields than their U.S. counterparts, an assertion proven by comparing large- and mega-cap dividend stocks from familiar dividend sectors such as consumer staples, energy, financial services and telecommunications.
The model portfolio’s value exposure is also relevant in the current climate.
“Value stocks’ resurgence relative to growth stocks, which started in late 2020, picked up steam last quarter. The foreign large-value Morningstar Category gained 8% versus foreign large-growth’s 0.6%,” adds Schultz. “Similarly, foreign small/mid-value gained 8.8% against foreign small/mid-growth’s 1.3%. U.S. stocks followed the same pattern, with value beating growth across the market-cap spectrum.”
Not all markets are currently offering value propositions. Fortunately, for investors considering a value wager, some of the larger, least volatile developed markets outside the U.S. are showing some signs of value rebounds. Those include the U.K. and Japan, among others.
“Developed-markets stocks outperformed emerging-markets stocks, with the Morningstar Developed Markets ex U.S. Index gaining 4.3% last quarter versus the Morningstar Emerging Markets Index’s 2.8%,” according to Schultz.
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.
