For the past decade and a half, US stocks have been the dominant force in the investment world. Particularly large-cap tech stocks have seen impressive growth, with the Nasdaq and S&P 500 outperforming international markets. While the US dollar has had a strong 2022, the winds of change are starting to blow in favor of international equities.
The chances of a less hawkish Fed this year, the decline of the pandemic and economic improvement in other parts of the world and the strength of these currencies have caused the greenback to lose its appeal to some extent this year. Invesco DB US Dollar Index Bull Fund (UUP – Free Report) added about 2% this year.
Changing tides: International equities set for a comeback
After years of lag, international equities are showing signs of a comeback. Rapid changes in the global economy, receding effects of the pandemic coupled with changing monetary policies are setting the stage for a resurgence.
Why European ETFs May Be Better Bets Than the US
Investing in Europe has outperformed the United States during the initial phase of 2023. Cheaper valuation, optimistic corporate earnings, a more resilient economy and ever lower interest rates in Europe than in the United States led the recovery. Mainland markets showed an impressive trajectory in the first quarter of this year, and the trend continued in the second quarter of the year.
The pan-European Stoxx 600 index is hovering around a 14-month high. Banks appeared to have allayed the last worry of failure with Deutsche Bank and Barclays reporting decent results over the past reporting season. Mining stocks are also in prime position following the reopening of one of the biggest consumers – the Chinese economy (read: Why European ETFs may be better bets than the US).
Emergence of emerging markets
Investors generally diversify with allocations in developed and emerging markets. Notably, emerging markets have lagged behind their US counterparts over the past decade. Yet with regulatory changes and improved transparency, particularly in Chinese accounting practices, emerging markets are gaining momentum.
Some other economies like Greece. Nigeria and Saudi Arabia joined for country-specific reasons. In particular, the rise in inflation and the recovery of the commodity market proved to be favorable to this bloc.
With that in mind, below we highlight some international ETF winners from this year. These ETFs beat the SPDR S&P 500 ETF Trust (TO SPY – Free Report) (up 10% this year).
Focus on ETFs
iShares MSCI EAFE Growth ETF (GFE – Free report) – Up to 14.8%
WisdomTree International Hedged Quality Dividend Growth Fund (IHDG – Free report) – Up to 14.3%
SPDR S&P Emerging Markets Dividend ETF (EDIV – Free report) – Up to 17.8%
iShares Currency Hedged MSCI EAFE ETF (HEFA – Free report) – Up to 13.5%
iShares ESG Aware MSCI EAFE ETF (ESGD – Free Report) – Up to 11.9%
Conclusion
While local equities have shown tremendous performance, the tables seem to be turning in favor of international equities. Whether you’re an experienced investor or a newcomer, now may be the perfect time to consider diversifying your portfolio to take advantage of the potential rally in global markets.
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