With several countries in various stages of their respective economic cycles, getting international exposure offers investors an option to expand beyond the realm of U.S. equities. Furthermore, implementing an active management strategy eases the burden when looking at the seemingly endless opportunities overseas.
In addition to capturing countries at various economic cycles, thereby exposing the investor to potential growth and value opportunities versus isolated exposure to the U.S., some market analysts prefer international equities for other reasons. Take dividends, for example, whereby international equities target value by providing investors with income versus raising a company’s value by decreasing the number of shares available to the market.
In short, there’s an affinity for international equities to pay shareholders as opposed to buybacks.
“Outside the U.S., there’s more of a culture of returning capital to shareholders through dividends rather than buybacks,” said Julian McManus, a portfolio manager at Janus Henderson Investors, in a Barron’s article.
2 Active Options, 1 Low Expense Ratio
Active ETF opportunities shouldn’t be passed off as too expensive when considering options, especially in the case of international exposure. A pair of funds to consider, both coming with a low expense ratio of just 23 basis points, are the Avantis International Equity ETF (AVDE ) and Avantis Responsible International Equity ETF (AVSD ).
Both funds come with international exposure but tilt them differently depending on the investor’s goals for their portfolio. For a broad spectrum of international exposure, AVDE can serve that purpose.
The fund invests in a broad set of companies of all market capitalizations across non-U.S. developed countries and is designed to increase expected returns by overweighting securities trading at lower valuations with higher profitability ratios. Given this strategy, the obvious tilt is towards value, but holdings are not relegated to just large-cap companies, giving investors more market cap diversification.
AVSD provides a different level of exposure, particularly for investors who are targeting environmental, social and governance (ESG) opportunities outside of the U.S. AVSD serves that purpose.
AVSD achieves this exposure by screening out companies that raise concerns based on the fund manager’s evaluation of multiple ESG metrics and pursues the benefits associated with indexing, but with the ability to add value by making investment decisions using information based on proprietary evaluations. Like AVSD, the fund invests in a broad range of market caps, irrespective of size so diversification is achieved to capture value and growth factors.
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