Legendary investor Warren Buffett famously said, “Never bet against America.” But some investors might want to stop betting too heavily on U.S. stocks.
During the past year, America’s S&P 500 index has underperformed several international stock markets, including Japan’s Nikkei 225 index, South Korea’s Kospi index, Taiwan’s TAIEX index, and Canada’s S&P/TSX index.
Why are investors buying international stocks? Some of the demand is driven by positive reasons: expected economic growth and future earnings gains in other countries. But some investors are also moving away from America.
They’re concerned that America’s tech sector is overvalued, that American artificial intelligence (AI) stocks are overhyped, and that the era of “American exceptionalism” — when U.S. stocks strongly outperformed the rest of the world — is coming to an end.
This doesn’t mean that U.S. stocks are doomed. America and the rest of the world could all keep growing and prospering into the future. But if you’re an American investor who wants to diversify your portfolio against the risks of a possible U.S. tech downturn or a weaker U.S. dollar, buying international stocks can be a good move.
Let’s look at three popular international stock ETFs to see which might be a good choice for your portfolio.
Image source: Getty Images.
iShares Core MSCI Total International Stock ETF: 4,160 stocks delivering three years of 17.7% annualized returns
The iShares Core MSCI Total International Stock ETF (IXUS +0.55%) is an exchange-traded fund (ETF) that holds a total of 4,160 stocks from more than 20 countries. This is a well-diversified fund that gives you exposure to international companies of all sizes (large caps, mid caps, and small caps) and from developed markets like Japan and the United Kingdom to emerging markets like India and Brazil. This fund’s low expense ratio of 0.07% makes it a low-cost way to invest in the world beyond the U.S. market.
The fund’s top five holdings (as of May 14) are tech companies from Taiwan, South Korea, the Netherlands, and China:
- Taiwan Semiconductor (TSM 2.10%): 4.1% of the fund
- Samsung Electronics (SSNLF +0.00%): 2.2%
- SK Hynix (OTC:HXSCL): 1.7%
- ASML Holding (ASML 1.96%): 1.4%
- Tencent Holdings (TCEHY 1.00%): 0.9%
Its top 10 holdings also include major financial and pharmaceutical stocks.
iShares Trust – iShares Core Msci Total International Stock ETF
Today’s Change
(0.55%) $0.51
Current Price
$93.90
Key Data Points
Day’s Range
$93.11 – $94.25
52wk Range
$74.10 – $96.38
Volume
689
For the past three years, the iShares Core MSCI Total International Stock ETF has delivered average annual returns of 17.7%. Its trailing-12-month dividend yield is 2.93%, which is competitive with some of the best dividend stock ETFs. And this fund’s price-to-earnings (P/E) ratio is 18.6, which looks much cheaper than America’s stock market earnings multiples of 31.9 for the S&P 500 and 34.6 for the tech-heavy Nasdaq-100.
iShares Core MSCI EAFE ETF: 2,621 stocks in developed markets, with 3.3% dividend yield
If you want to focus your global investments on developed markets like Europe, Australia, Asia, and the Far East, the iShares Core MSCI EAFE ETF (IEFA +0.94%) could be a solid choice. This fund has delivered annualized returns of 15.7% for the past three years.
iShares Trust – iShares Core Msci Eafe ETF
Today’s Change
(0.94%) $0.89
Current Price
$96.10
Key Data Points
Day’s Range
$95.25 – $96.20
52wk Range
$79.82 – $98.83
Volume
58
It holds fewer stocks than the iShares Core MSCI Total International Stock ETF (only 2,621) but still offers strong diversification across large caps, mid caps, and small caps. And its expense ratio is the same low 0.07%, making this another low-cost way to buy international stocks.
The fund’s top five holdings are less tech-heavy than the iShares Core MSCI Total International Stock ETF and more focused on pharma and financials:
- ASML Holding: 2.4% of the fund
- HSBC Holdings (HSBC +1.98%): 1.2%
- AstraZeneca (AZN +1.29%): 1.1%
- Roche Holding (RHHBY +0.02%): 1.1%
- Novartis (NVS +0.72%): 1.1%
This fund has a trailing-12-month dividend yield of 3.3% and a P/E ratio of 18.1. It might be even cheaper than the iShares Core MSCI Total International Stock ETF.
Vanguard International High Dividend Yield ETF: 1,582 stocks with three years of 21% annualized returns
The Vanguard International High Dividend Yield ETF (VYMI +1.04%) has recently outperformed the other two funds, with 21% annualized returns (by net asset value) for the past three years. This fund owns 1,582 stocks (as of April 30) that are expected to deliver higher-than-average dividends. Like the other two funds, this is a low-cost international ETF — its expense ratio is only 0.07%.
Vanguard International High Dividend Yield ETF
Today’s Change
(1.04%) $1.02
Current Price
$99.29
Key Data Points
Day’s Range
$98.64 – $99.29
52wk Range
$77.46 – $101.71
Volume
562
Because of its objective to invest in well-established, consistently profitable companies, the fund mostly invests in developed markets. Emerging markets make up only 22.4% of the fund’s holdings. The top five markets in this ETF are Japan (11.3% of the fund), the United Kingdom (11.3%), Canada (8.9%), Australia (7.4%), and Switzerland (7.4%).
Top holdings include pharmaceutical stocks and major financial and energy names:
- HSBC Holdings: 1.7% of the fund
- Roche: 1.5%
- Novartis: 1.5%
- Nestlé (NSRGY +1.58%): 1.4%
- Shell PLC (SHEL +3.78%): 1.4%
The fund is living up to its name by delivering high dividends — its trailing-12-month dividend yield of 3.47% is higher than either of the other two funds. And the Vanguard International High Dividend Yield ETF might be the cheapest of these three funds: Its P/E ratio is only 14.0 (as of April 30).
How to choose an international ETF
For the past five years, the S&P 500 index has outperformed all three of these international ETFs. But in the past year, the Vanguard International High Dividend Yield ETF has outperformed the S&P 500 and the other two international funds, while the iShares Core MSCI EAFE ETF has lagged:
IEFA Total Return Level data by YCharts.
Choosing the best international ETF depends on your goals and investing style. If you want the most broadly diversified index fund, the iShares Core MSCI Total International Stock ETF would be the best choice of these three. If you want to focus on dividends and don’t mind holding a smaller number of stocks, the Vanguard International High Dividend Yield ETF has recently delivered the best returns of these three global ETFs.