Investors looking to diversify their equity portfolio internationally without adding increased volatility often turn to the EAFE Index. Amidst ongoing global inflationary challenges, the Fidelity Enhanced International ETF (FENI ) seeks outperformance above the benchmark.
Though many global economies continue to grapple with inflation, the first quarter brought about signs of recovery for the biggest economies.
“Global cyclical momentum gained steam in Q1 and appeared to broaden across a greater swath of regions and countries,” according to Fidelity’s Economic outlook: Second quarter 2024.
“Leading economic indicators improved across most of the world’s largest economies,” the report explained. Moreover, “an increasing number of countries moved into expansionary manufacturing PMI territory.”
Elevated Valuations
As developed economies continue to stabilize and recover, EAFE (Europe, Australasia, and the Far East) stocks appear increasingly attractive when compared to U.S. stocks. It’s no secret that valuations in large-cap equities within the U.S. are at elevated levels compared to their historical averages.
The S&P 500 Index generated a trailing price-to-earnings ratio of 24.79 and a forward P/E of 20.11 as of 04/30/24, according to S&P Global. In comparison, the MSCI EAFE Index generated a trailing price-to-earnings ratio of 15.48 and a forward P/E of 13.94 as of 04/30/24, according to MSCI.
“The trailing one-year price-to-earnings (PE) ratio for US stocks remained well above its long-term average,” according to the report. Meanwhile, “DM [developed markets] finished below the long-term average.”
FENI Seeks Outperformance Within EAFE
The Fed interest rate path remains a dominating influence on 2024 markets. What’s more, signs of persistent inflation in the U.S. in April rocked domestic markets, causing a spike in volatility.
In times of heightened volatility and uncertainty, investors looking to reduce risk in international exposures often turn to developed market economies. Given the current attractive valuations of DM markets, they’re worth consideration this year.
DM economies include countries like Germany, France, Italy, Norway, Australia, Japan, and more. The MSCI EAFE (Europe, Australasia, and Far East) Index encompasses 21 countries from developed markets. It excludes Canada and the U.S. and focuses on large- and mid-cap companies. The fund’s top country is currently Japan, with 23.15% of the portfolio in Japanese holdings as of 4/30/2024 — learn more about current opportunities investing in the Japanese market in this recent article from Fidelity Investments).
The Fidelity Enhanced International ETF (FENI ) invests in companies within the MSCI EAFE Index. The Fund is actively managed and utilizes computer-assisted quantitative analysis in security selection. This analysis includes historical valuation, profitability, growth, and other factors.
FENI provides diversified exposure to companies with the potential to generate better returns than the MSCI EAFE Index. The Fund currently outperforms the benchmark Index year-to-date.
In the last year, FENI generated a total return of 18.21% as of 03/31/2024, according to the Fund’s website. In comparison, the MSCI EAFE NR USD generated returns of 15.32% over the same period.
FENI carries an expense ratio of 0.28%.
For more news, information, and analysis, visit the ETF Investing Channel.
Fidelity Investments® is an independent company unaffiliated with VettaFi. There is no form of legal partnership, agency affiliation, or similar relationship between VettaFi and Fidelity Investments. Nor is such a relationship created or implied by the information herein. Fidelity Investments has not been involved with preparing the content supplied by VettaFi. It does not guarantee or assume any responsibility for its content.
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