International stocks have made a strong comeback over the past year, prompting investors to reassess their portfolios and consider the value these assets may add. After several years of underperformance, attractive international opportunities are resurfacing, especially as the tech and artificial intelligence (AI) sectors experience high valuations and a slowdown in momentum. This environment has led to a renewed interest in value and defensive strategies, making international stocks increasingly appealing.
Historically, international stocks flourish when valuations begin to normalize, often leading to extended periods where both developed and emerging markets outperform the S&P 500. Current economic growth expectations from foreign markets are starting to pick up, suggesting that international equities may offer an optimal mix of growth and value for the foreseeable future.
For those looking to capitalize on this resurgence, there are three notable low-cost exchange-traded funds (ETFs) to consider:
The Vanguard FTSE Developed Markets ETF (VEA) provides one of the broadest and most affordable ways to invest in international equity markets, encompassing nearly 4,000 stocks across Europe, Asia, and Canada. This ETF is market-cap weighted, allowing investors to gain exposure to major corporations such as ASML Holding, Samsung, and Roche Holdings.
The iShares MSCI Emerging Markets ETF (IEMG) offers access to over 2,500 large-, mid-, and small-cap stocks from emerging markets, including China, Taiwan, South Korea, and India. Similar to the Vanguard ETF, it follows a market-cap weighting strategy, featuring top holdings like Taiwan Semiconductor Manufacturing, Samsung, Tencent Holdings, and Alibaba.
The Schwab International Dividend Equity ETF (SCHY) caters to those who favor dividend-paying stocks. Mirroring the strategy of the Schwab U.S. Dividend Equity ETF, it focuses on well-established companies across both developed and emerging markets, including BHP Group, GSK, and Roche Holdings. This ETF currently boasts a yield of approximately 3.6%.
The case for reinforcing portfolios with international stocks is further strengthened by a declining dollar, which serves as a favorable backdrop for international investments. There remains significant value in these stocks compared to the S&P 500. Historically, leadership in the stock market tends to shift following long stretches of U.S. outperformance, making international assets viable options for diversification and improved risk-adjusted returns.
In light of these factors, the three ETFs highlighted could play vital roles in enhancing portfolios by introducing international exposure, potentially leading to better overall investment performance.
