With news that the European Central Bank (ECB) has cut interest rates, and the year drawing to a close, now could be a good time to revisit active international investing. Many market watchers are likely familiar with the case for diversifying from U.S. concentration risk by now. Megacap tech names have contributed outsized returns to the S&P 500 this year, with tech-specific risks, then, posing outsized risk, themselves. Of course, investing abroad requires the right exposure or exposures. In that case, it may be worth looking to active international investing to benefit from those rate cuts.
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The ECB’s cut brought interest rates down to 3% from 3.25%, per reporting from the Wall Street Journal. That cut follows two cuts at the last two meetings, suggesting potential further cuts may be possible. Should the European economy see a boost from repeated cuts, its solid, developed markets firms could play a role for investors.
Active International Investing Following ECB Rate Cuts
Of course, not all routes therein are alike. A passive international equities fund appeals thanks to its simplicity – just invest and let it sit – but international equities, especially in a situation with upside and risk, merit an active international investing approach. Experienced managers who know foreign markets can outperform passive international equities by leaning on their knowledge and expertise. What’s more, those managers can often make use of fundamental research to take a closer look at firms than passives do.
Finally, with active ETF flexibility, investors can get funds that adapt to events like rate cuts. Together, that may speak to the case for a fund like the T. Rowe Price International Equity ETF (TOUS ). The fund charges a 50 basis point (bps) fee to actively invest in non-U.S. stocks.
International diversification may not seem exciting, but with an active international investing approach, it could really deliver. For those on the lookout, a strategy like TOUS could appeal.
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