Venturing outside the boundaries of U.S. equities requires a discerning screener even if the advisor is recommending developed markets only. Every country has its own unique set of nuances that a global macroeconomic view can simply account for even if inflation is still a major catalyst.
What international equities can provide as a whole is portfolio diversification because different countries can be in various economic cycles. In times of upside, this can give international equities a leg up on U.S. equities, offering outperformance that investors may not be able to get domestically.
That is, of course, if the right equities are chosen. That in and of itself presents a unique challenge that warrants an aforementioned discerning screener.
“In our view, international equities can continue to outperform US cap-weighted indices, but regional and fund selection is crucial,” BofA’s global research team stated in a note to its clients, per a Seeking Alpha article.
Opt for Quality
One place to start, especially in economic times when a number of unknowns still remain, is quality. After a tumultuous 2022 where global inflation upended markets worldwide, the prevailing expectation is that a comeback awaits.
However, nobody knows what central banks will do, and interest rates could remain high for quite some time. That said, quality can give investors safety when markets reverse from the current rally with their ability to mute the downside.
One exchange traded fund (ETF) that gives investors the duality of international equities as well as the quality factor is the American Century Quality Diversified International ETF (QINT). Per its fund description, QINT seeks to capture the performance of large- and mid-capitalization companies outside the U.S. that possess attractive quality, growth, and valuation fundamentals.
The index universe includes the stocks of companies based in developed economies outside the U.S. and companies based in the rising economies of Taiwan, South Korea, Hong Kong, and China. In essence, the fund includes a mix of developed markets as well as emerging markets that offer growth exposure.
Diving deeper into its holdings, there are 379 equity issues as of December 31, 2022, so overconcentration is avoided. That diversification also lends itself to the number of sectors the fund invests in with sector weights heaviest in industrials (15%), financials (15%), and consumer discretionary (13%).
For more news, information, and analysis, visit the Core Strategies Channel.
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