Coming off a year in which the international equity proposition was refreshed as the MSCI EAFE Index handily outperformed the S&P 500, advisors and investors are increasingly inclined to allocate to ex-US markets. That’s a sensible approach, as a small number of stocks command massive percentages of widely followed domestic equity gauges.
That underscores the benefits of international diversification and there multiple ways to skin that cat thanks to ETFs such as the ALPS O’Shares International Developed Quality Dividend ETF (OEFA). OEFA, which is on an S&P 500-thuming pace of its own over the past year, could be an ideal option for asset allocators looking to diversify US-heavy portfolios.
“With a handful of US companies representing such a huge portion of the value of US stocks, concentration risk is at an all-time high. It’s not that I think another tech bubble is coming—unlike those dot-com companies of 1999, these tech companies are profitable. However, for a variety of reasons, some of these companies could falter,” noted Allan Roth for Morningstar.
Examining OEFA Advantages
Another perk offered OEFA is a different sector profile relative to comparable to US-focused funds. That’s something to consider against the backdrop of extend leadership by domestic communication services and technology stocks.
But this scenario may not last in perpetuity. Thus, OEFA’s reduced dependence on growth sectors could serve investors well if market participants move on to value sectors. That could be meaningful to OEFA. Industrial, consumer cyclical, and healthcare stocks combine for more than 61% of the ETF’s roster.
“I don’t know what sector will be dominant in a decade, but from the chart above, international stocks have a higher concentration in most other sectors outside of technology and communications services,” added Roth. “The latter are composed of companies like Alphabet and Meta Platforms, which are heavily tech-focused, including artificial intelligence. The point is that the next rising sector is likely to be concentrated outside of the US.”
Breadth is also important when investing internationally and OEFA answers that bell. The ETF provides exposure to eight of the global industry classification standard (GICS) sectors. More importantly, the fund represents stocks from15 countries.
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