One of the most widely anticipated presidential elections in U.S. history arrives today, bringing with it implications for an array of asset classes. Leading up to Election Day, some market observers are discussing opportunities for ex-U.S. equities, indicating the ERShares International Equity ETF (ERSX) is an idea to consider over the near-term.
ERSX attempts to deliver enhanced returns and maximize diversification in an attempt to provide potentially improved risk-adjusted returns, compared to traditional market-capitalization-weighted indices.
ERSX tracks 50 non-U.S. companies from around the world with market capitalizations between $300 million and $5 billion USD and the highest rank based on the six investment style factors.
“EntrepreneurShares has created a rules-based methodology that selects publicly-traded Entrepreneurial companies,” according to the issuer. “This procedure is applied in creating the Entrepreneur Non-US Small Cap Index. The Index is comprised of 50 Non-US companies form around the world with market capitalization based between $300 million and $5 billion USD.”
ERSX: International Allure and Undervalued Stock Markets
ERSX is also meaningful, regardless of electoral outcomes in the U.S., because the exchange traded fund presents investors with an opportunity to lower exposure to some frothy valuations on domestic equities.
Foreign markets have underperformed U.S. equities over the past decade, but it might be time for investors to consider international stocks and related exchange traded fund exposure. The outperformance in U.S. markets has pushed up domestic valuations far above foreign valuations, and now, some are wondering if these cheaper valuations in foreign markets may be attractive enough this time around.
“But U.S. equities are overpriced. Any gains here at home will be modest at best. By contrast, many foreign stock markets are undervalued,” according to Banyan Hill. “That means the smart money will start looking for returns overseas.”
With volatility taking hold of major U.S. indexes once again, it might seem that seeking the safety of large-cap equities is the best move when markets flux up and down to a large degree. Yet over the next 10 years, the small-cap elite and international fare could soon assume the mantle.
Owing to the Federal Reserve’s move to take interest rates to record lows, the U.S. dollar is sagging this year. Greenback weakness doesn’t spell trouble for investors considering international equities.
Adding to the case for ERSX, emerging-markets earnings are even expected to rebound more than U.S. earnings in 2021. Overseas developed-market earnings are anticipated to bounce back further than U.S. profits next year as well.