Tumult in U.S. markets this year has prompted investors to search abroad for investment opportunities. While the S&P 500 has recovered from its early-April tariff-related dip, a number of international and value exchange-traded funds (ETFs) have managed to easily outperform its year-to-date (YTD) returns of 10.2%.
Besides volatility related to trade and regulatory policies, U.S. equities face high valuations that have prompted a shift toward non-U.S. markets. This can be seen in the increase in flows into international value strategy funds, particularly in the small-cap or dividend stocks space. Three ETFs, in particular, stand out as excellent options for investors looking to capitalize on this trend. All of them have YTD returns of at least 21%, which is well ahead of the broader U.S. stock space.
Low Cost, High Returns, Broad Diversification, But Just a Couple Caveats
The Vanguard FTSE All-World ex-US ETF (NYSEARCA: VEU) is among the largest, most liquid, and least expensive internationally focused ETFs currently available. With about $50 billion in assets under management (AUM) and a one-month average trading volume over 2.8 million, the fund's expense ratio of just 0.04% is a real bargain. On top of that, VEU pays an annual dividend of $1.84 per share, translating to a 2.65% yield, giving investors meaningful income in addition to broad equity exposure.
VEU provides excellent and diverse coverage of much of the equities world. With nearly 3,800 holdings, the fund makes a good choice for investors looking for a single access point to the entire landscape of non-U.S. stocks. However, there are two considerations worth keeping in mind when it comes to diversification and VEU. First, while this ETF includes both emerging and developed markets, the former occupies only about 27% of the portfolio, while Europe makes up the majority of the remainder with a total of nearly 40% of invested assets. Second, VEU is primarily focused on large-cap names, potentially leaving out exposure to smaller firms worldwide.
Nonetheless, for the return, the ease of access, and the price—not to mention the benefit of dividend payments—VEU is a solid choice for this particular international moment.
Focus on Developed Market Value Stocks Pays Off
While VEU casts a very wide net when it comes to portfolio construction, the iShares MSCI EAFE Value ETF (BATS: EFV) has a narrower focus. EFV targets stocks from markets outside of North America and has a particular interest in value names based on metrics like low pricing multiples. Companies in the EFV portfolio are based in developed markets and have valuations placing them in the large-cap space, further narrowing the portfolio to a total of over 400 names.
EFV's positions are geographically varied, but only roughly a dozen countries are represented in the portfolio. Japan, the U.K., and Germany collectively represent about half of invested assets, though on the level of individual stocks no single position represents more than roughly 2.3% of the portfolio.
Thanks to its focus on value stocks—including dividend-paying ones—EFV offers a solid dividend with an annual yield of 3.37%. What's more, the fund has returned more than 31% this year, confirming its stock selection process. For a relatively low expense ratio of 0.33%, investors get a lot in return.
Niche Strategy Targeting Small-Cap Value Stocks Provides Excellent Returns
With a unique focus on international small-cap value names, the Avantis International Small Cap Value ETF (NYSEARCA: AVDV) targets companies in developed markets that may be undervalued relative to their peers as indicated by high profitability ratios. The smallest of the three funds on this list and the most recently launched, AVDV has about $11.8 billion in AUM and a comparably lower one-month average trading volume of over 400,000.
Still, though, among the more than 1,400 holdings in AVDV's portfolio are firms representing many different sectors and geographies. Industrials, materials, and financials companies are especially prominent, and Japanese companies make up nearly a third of the fund, but regional diversification is not lacking.
Investors will likely be impressed with the fund's roughly 34% returns so far this year, all while delivering an annual dividend yield of 3.58%. Small-cap international names are a popular niche for a reason, and AVDV delivers well for investors with this specific set of parameters in mind. What's more the fund's costs are low for a specialized strategy like this one, with an expense ratio of 0.36%.
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The article "Low-Cost Global Exposure: 3 Diversified ETFs for Value Investors" first appeared on MarketBeat.
