This ETF Provides International Equities Exposure Without the Volatility

With the risk dial turned up a few notches higher this year, investors are looking at international equities again. With inflation still a wild card in the markets, investors may want to opt for a low-volatility option such as the Invesco FTSE International Low Beta Equal Weight ETF (IDLB).

It’s easy to see why investors are flocking to these international equities. They’re already seeing outperformance when it comes to major stock market indexes in the United States.

“The MSCI EAFE Index of developed-world stocks outside the US surged by 26.8% from October 2022 through the end of January 2023 in US-dollar terms, outperforming the S&P 500’s 14.3% gain. Four months doesn’t necessarily signal a durable trend,” AllianceBernstein noted in a blog. “However, since US stocks outperformed international stocks for eight of the past 10 years, many investors are rightly asking whether return patterns may shift this year.”

Last year, the greenback performed admirably thanks to monetary policy tightening by the U.S. Federal Reserve, which dialed up the pace of interest rate hikes. This year, that’s expected to diminish, so the effect of the dollar pegged to the rest of the world’s currencies should help prop up international equities.

“In particular, a weaker US dollar and the global implications of China’s reopening are supporting equities outside the US, while several central banks are farther along than the Fed in their monetary policy tightening phases,” the blog added. “Market valuation dynamics could add another impetus for international stocks.”

A Low-Beta Play

IDLB is based on the FTSE Developed ex-U.S. Low Beta Equal Weight Index. The fund generally will invest at least 90% of its total assets in the securities that comprise the index. The index tracks the performance of stocks in the FTSE Developed ex US Index that exhibit low-beta characteristics.

One of the highlights of the fund is its diversification with regard to sector allocation, country allocation, and market cap/style. The fund invests in a variety of sectors spanning from industrials to energy, reducing the over-concentration in one specific sector.

True to its international focus, the fund invests across a broad range of developed and emerging markets. As of February 17, its top allocation is to Japan (37.6%), but it also has its second-largest allocation to South Korea (9.10%).

Low volatility doesn’t mean the fund only centers exposure on large-cap holdings. The fund spreads its holdings to a mix of market cap sizes as well, with an over 50% concentration in mid-cap holdings, which offer the best of both worlds in terms of volatility protection and growth.

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