With less than two months left in 2023, this maybe another disappointing year for broad-based ex-US developed market equity funds. This includes a slew of passive exchange traded funds.
That extends a lengthy stretch in which ex-US developed market equity gauges, such as the MSCI EAFE Index, have trailed the S&P 500. As a result, many U.S. investors aren’t rushing to examine international opportunities. Perhaps they should. This is particularly true at a time when valuations in the asset class are low and some equity markets outside the U.S. are rallying.
Of course, selectivity is key and that objective can be realized with the (CVIE ). CVIE, which tracks the Calvert International Responsible Index, employs an environmental, social, and governance (ESG) overlay, which speaks to selectivity. Fortunately for investors considering international developed market exposure, the Calvert ETF has other fine points.
CVIE Relevant Today
Many market participants aren’t rushing hand over fist into ex-US developed market stocks. CVIE’s quality attributes are enhanced when many central banks may be forced to keep interest rates high or raise borrowing costs.
“We see regional stock markets facing diverse policy, inflation and growth prospects – affecting corporate earnings,” noted BlackRock. “That variety is reflected in the wide dispersion in excess compensation investors receive for the risk of holding stocks over bonds – or earnings yield minus bond yield – in different DMs. That divergence creates opportunities to be selective, in our view.”
The asset manager is neutral on U.K. stocks, which account for 11.53% of CVIE’s portfolio. Still, it has an overweight view on Japanese equities. At a weight of 17.29%, Japan is CVIE’s largest geographic exposure. That’s a good thing, too, because Japan is home to one of 2023’s best-performing equity markets.
Another point in favor of CVIE is that the ETF isn’t as heavily allocated to Eurozone equities as are some traditional competitors. That’s relevant because while valuations on Euro-area stocks are low, economic growth in the region could be slack for some time. Translation: Selectivity matters and CVIE has it.
“Markets are starting to price in the volatile new regime of higher rates and lower long-term growth. We see greater dispersion – and opportunities – as a result. DM stocks are the major building block of portfolios. We get selective across regions based on valuations, earnings prospects and what’s in the price,” concluded BlackRock.
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