The S&P 500 may have been up over 5% last month, but there were better returns on offer overseas, and U.S. investors were quick to jump on them.
Based on capital flows alone, overseas markets won the capital contest by a landslide. Over $10 billion was withdrawn from US-listed funds tracking domestic stocks in January, one of the largest monthly draw out in recent years. Meanwhile, overseas ETFs enjoyed a bumper influx of American money, with U.S. investors diverting almost $18 billion into international funds.
“[U.S.] Investors came into the new year with a renewed focus on expanding their presence in European and Asian markets,” says Todd Rosenbluth, head of research at New York-based VettaFi, told the Financial Times.
“They have not been penalised for having a home bias in recent years because the fastest-growing companies were in the U.S., but sentiment has been shifting towards global diversification.”
The momentum for the shift began building before the new year. In late 2022, returns from international equities beat U.S. market gains for the first time in four years.
The weakening greenback also lowers repatriation costs, so American investors keep more of their gains when their overseas returns get converted back into U.S. dollars.
The U.S. dollar declined since the start of the year, reaching a nine-month low at the end of January against a basket of currencies.
The lure of international equities could hold over the short term, especially if the Fed eases monetary tightening, which would likely weaken the dollar further and buoy investors’ hopes of a soft landing for the U.S. economy. The Eurozone economy managed to expand 0.1% in the closing quarter of 2022, defying expectations of a contraction. Meanwhile, China’s manufacturing and services picked up in January after several months of trending downwards, reigniting hopes among investors of a Covid reopening growth spurt.
If that bull case of overseas ETFs remains, the following funds will surely be top of investors’ watchlist, as they are all currently beating the S&P 500 year-to-date.
OneAscent Emerging Markets ETF (OAEM)
OAEM holds a high-conviction portfolio of emerging market equities. Most of its holdings are in technology and finance, with Taiwan, South Korea, and Hong Kong the largest geographical weighting. It has an expense ratio of 1.25% and is up around 10% Year-to-Date.
iShares MSCI Eurozone ETF (EZU)
EZU follows a market cap-weighted index of large-and mid-cap firms from eurozone countries. The fund’s portfolio spreads across a range of industries, with finance, consumer products, and technologies all above 10% weighting. It has an expense ratio of 0.52% and is up roughly 12% Year-to-Date.
iShares MSCI China ETF (MCHI)
MCHI tracks a market-cap-weighted index of investable Chinese stocks. Its largest holdings are in Tencent, followed by Alibaba and Meituan. The fund expense ratio of 0.54% and is up around 9% Year-to-Date.
JPMorgan BetaBuilders Europe ETF (BBEU)
BBEU BBEU tracks a market cap-weighted index of large- and mid-cap stocks in developed European countries (including the U.K.). Nestle, Moet Hennessey, and ASML are its three largest holdings. BBEU has an expense ratio of 0.52% and is up around 8.5% Year-to-Date.
This article was produced by and syndicated by Wealth of Geeks.
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