Core U.S. equity and U.S. fixed income ETFs were up 2%-3% year-to-date through mid-June. Such modest performance has led many advisors to look for diversification benefits through other investments. During a late May webcast, VettaFi asked advisors to share where they were looking to diversify their client portfolios.
Half of the respondents told us they are focused on international equities. This was much higher than the demand for commodities/gold (21%), non-core fixed income (15%), and digital assets (10%). Some of the interest in international equities likely stems from the relative strength.
Why Are Advisors Looking Overseas?
Widely held ETFs like the iShares Core MSCI EAFE ETF (IEFA ) and the Vanguard FTSE Developed Markets ETF (VEA ) were up 19% year-to-date through June 10. These ETFs handily outperformed U.S. equities and U.S. fixed income. Strong macroeconomic conditions outside of the U.S. and attractive valuations helped boost developed international stocks.
IEFA and VEA have performed in sync in 2025, but the ETFs are indeed different. This is particularly true at the country level. For example, VEA has exposure to Canada (10% of recent assets) and South Korea (4%) that is not found in IEFA. The country inclusion decisions are made by the underlying index partners and are not an active decision. Both ETFs have more than 20% of assets invested in Japan.
Dividend ETFs Are Built Differently
The WisdomTree International Quality Dividend Growth Fund (IQDG ) is a fundamentally weighted ETF and differs from the market-cap weighted IEFA and VEA. Dividend-paying stocks are selected by applying quality and growth screens. The WisdomTree ETF has more exposure to the U.K. (19% vs. 14% for IEFA) and less exposure to France (6% vs. 10%).
Meanwhile, the ALPS International Sector Dividend Dogs ETF (IDOG ) offers a high-dividend approach to international equity investing. The fund owns the five-highest-yielding stocks across each sector from the developed international market and equally weights them. France (18% of assets) is the largest country exposure, followed by Japan (13%) and Finland (10%). Finland represented just 1% of IEFA’s assets.
IDOG and IQDG also have no exposure to Canada’s or South Korea’s stocks. South Korea is considered an emerging market by some index providers.
Need a Tour Guide? Explore Active ETFs
While the above ETFs track indexes, some advisors want a professional to help guide them through the international markets. The Thornburg International Equity ETF (TXUE) is a recently launched ETF. Management favors stocks from France (22% of assets) over those from Japan (16%) and the U.K. (8%).
Meanwhile, other actively managed international equity ETFs invest in companies from developed and emerging markets. The MFS Active International ETF (MFSI) is one of them. Emerging markets represented 20% of the fund’s recent assets, including exposure to China, Taiwan, and South Korea. Japan was MFSI’s largest country, at 14%, followed by France.
Sentiment toward international equities has improved. However, before taking the trip overseas, make sure to look closely at your itinerary. VettaFi will be discussing international equities during the Midyear Market Outlook Symposium on June 26. Book your first class ticket today.
VettaFi LLC (“VettaFi”) is the index provider for IDOG, for which it receives an index licensing fee. However, IDOG is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of IDOG.
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