Look overseas for opportunities in stocks.
You might be tempted to skip investing in international stocks with the sector’s weak recent performance in contrast with U.S. markets. But the international markets are more reasonably valued than those of the U.S. Currently, Vanguard FTSE All-World ex-US Index Fund ETF (ticker: VEU) has a price-earnings ratio of 15.6 in contrast with the S&P 500’s P/E ratio of 24. Long story short, the higher P/E ratio of the S&P 500 represents more overvalued assets while a lower P/E ratio such as VEU suggests under or fairly valued assets. Unless you own a fail-proof crystal ball, it’s smart to diversify your investments internationally. Here are seven of the best international stock funds to buy in 2020.
Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU)
For exposure to the entire international equity market, it’s tough to beat this Vanguard staple. This foreign, large-cap blend fund tracks the performance of the FTSE All-World ex US Index. Efficient investors seeking one fund for their entire global allocation should look no further than VEU, with a 0.09% expense ratio. The fund owns more than 3,300 stocks, enough for excellent diversification. The fund is passively managed and enjoyed an outstanding one-year return of 21.63%. The companies within the fund are allocated with 23% to emerging markets, 42% to Europe, 28% to the Pacific regions, 6% to North America and less than 1% to the Middle East.
Fidelity China Region Fund (FHKCX)
With low interest rates across the globe, economic growth and global stock markets will likely be strong, experts say. The impact of the coronavirus, similar to that of the SARs virus, will tamp down markets for a short period and then rebound. With Chinese markets on sale, Fidelity China Region Fund is appealing. The investment’s goal is capital growth with 80% of assets invested in Hong Kong, Taiwan and China. The securities are selected using fundamental analysis of the firm’s financial condition, industry position, market and economic conditions. The fund’s 0.95% expense ratio is below the category average.
Vanguard FTSE Emerging Markets ETF (VWO)
The prominent VWO emerging markets fund owns thousands of large-, mid-, and small-cap foreign stocks located in emerging markets around the world. Typically, an emerging market economy lacks high levels of market efficiency and financial regulations and is on the path to becoming more advanced. For investors who believe that the smaller corners of the international markets are poised for growth, this Vanguard pick is a sound choice. The one-, three- and five-year annual returns of 20.8%, 10.6% and 5%, respectively, demonstrate a positive trend for VWO. The 3.24% dividend pays investors as they anticipate price appreciation. VWO tracks the performance of the FTSE Emerging Markets All Cap China A Inclusion Index. With a low 0.12% expense ratio, this diversified emerging markets fund gives investors a chance to participate in the faster growth of these nascent economies.
T. Rowe Price Global Stock (PRGSX)
This actively managed fund, launched in 1995, seeks long-term capital growth by investing in established companies worldwide, including the U.S. David Eiswert, the fund manager, invests in a variety of industries spanning the developed and emerging markets. PRGSX seeks out companies with a growing market share, strong free cash flow, solid profitability margins and experienced management. Ten years ago, $10,000 invested in PRGSX would have grown to more than $31,700 in contrast with $23,200 for the MSCI ACWI Index. The fund’s geographical diversification favors North America with 48.6%. The remainder of the fund is allocated in decreasing proportions to Europe, Pacific region ex-Japan, Japan and Latin America.
iShares MSCI Chile Capped ETF (ECH)
“For decades Chile had enjoyed some of the highest-percentile growth of all countries, but this pattern became less consistent in recent years,” says Steven Jon Kaplan, CEO of True Contrarian Investments. The fund has been volatile, due more to negative investor reaction to media coverage of civil unrest in Chile and not decreased corporate profitability. The Chilean civil unrest was influenced by an increase in the Santiago subway fare and there is no indication that corporate profits will decline, Kaplan says. ECH has an expense ratio of 0.59%, with 2.47% yield. The Chilean economy is concentrated in areas that will generally benefit from global growth and rising inflation, which should be major features of the financial markets in 2020 and 2021. Kaplan expects ECH to outperform most other country funds, including U.S. stock funds, during the next year or two.
Vanguard FTSE Europe ETF (VGK)
“In the current market environment where valuations are reaching attractive levels in developed Europe relative to the U.S., an allocation to Vanguard FTSE Europe ETF provides diversification to a U.S. portfolio along with relative upside potential,” says Mike Treidl, a director of institutional investments at Miracle Mile Advisors. This ETF tracks the performance of the FTSE Developed Europe All Cap Index and provides European market exposure at a competitive price with an expense ratio of 0.09%. With a 3.28% yield, VGK offers strong cash flow and diversified access to the European stock market. The top four sectors are financials, industrials, health care and consumer defensive. VGK’s returns have been comparable with those of VEU, with the overlap of the developed stock markets. This fund would be a good international fund in combination with VWO for broad global coverage.
Schwab Global Real Estate Fund (SWASX)
Craft the best international funds portfolio with this nod to global real estate. The actively managed global real estate mutual fund owns 147 companies concentrated in midsize firms. The top holdings include both U.S. and international real estate companies including Prologis (PLD), Sunac China Holdings, AvalonBay Communities (AVB), Simon Property Group (SPG) and Camden Property Trust (CPT). The top investment regions for the fund are the U.S., Japan, China, United Kingdom, Germany and Sweden. SWASX handily beat the FTSE EPRA/Nariet Global Index, the global real estate benchmark, in every recent period. The fund’s one-, three- and 10-year returns averaged 27.78%, 10.81% and 8.61%, respectively. The 2.68% yield adds attractive cash flow to the global real estate fund.
The best international stock funds to buy:
- Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU)
- Fidelity China Region Fund (FHKCX)
- Vanguard FTSE Emerging Markets ETF (VWO)
- T. Rowe Price Global Stock (PRGSX)
- iShares MSCI Chile Capped ETF (ECH)
- Vanguard FTSE Europe ETF (VGK)
- Schwab Global Real Estate Fund (SWASX)
Author: Barbara Friedberg
Source: Money. US News: 7 Best International Stock Funds to Buy in 2020