The landscape of international equity ETFs often centers around benchmarks like the MSCI EAFE Index, which measures the performance of developed markets excluding the U.S. and Canada. While passive investing in such broad indexes is a common strategy, active international ETFs may be able to outperform benchmarks and add value to portfolios.
The Fidelity Enhanced International ETF (FENI ), the T. Rowe Price International Equity ETF (TOUS ), and the JPMorgan International Research Enhanced Equity ETF (JIRE ) are actively managed funds that have each demonstrated their ability to outperform the MSCI EAFE Index, tracked by the iShares MSCI EAFE ETF (EFA ).
While the benchmark has climbed 20.4% year to date through July 10, TOUS is up 24.1%, FENI is up 23.4%, and JIRE is up 21.5% during the same period.
See more: Understanding the Tailwinds for Fidelity’s International ETFs
Over a one-year period, TOUS and FENI are each outpacing EFA by over 300 basis points.
TOUS stands out as the most expensive fund among those listed, with a 50 basis point expense ratio. However, its historical outperformance might warrant this higher fee. In contrast, FENI and JIRE are more affordable, charging 29 and 24 basis points, respectively, both lower than EFA’s 32 basis point fee.
Under the Hood of the 3 Active International ETFs
FENI invests mainly in stocks in the MSCI EAFE index, a market-cap-weighted index that includes mid- and large-cap companies in developed market countries, excluding the U.S. and Canada. FENI’s active management uses a disciplined investment process to provide exposure similar to the benchmark index while seeking outperformance. The fund charges 29 basis points, a competitive price for active international exposure.
TOUS generally focuses on large-cap companies in developed markets, though it invests across the entire market-cap spectrum. The fund managers construct the portfolio by evaluating a company’s fundamentals, earnings potential, and its valuation relative to peers. Consequently, the portfolio may simultaneously exhibit both value and growth characteristics.
Individual country allocations and weights typically stem from bottom-up stock selection. However, the manager may limit an individual country’s weight should its macro outlook appear less favorable.
See more: TOUS Benefits From Growing Overseas Interest
JIRE seeks to outperform the MSCI Europe, Australasia, Far East (EAFE) Index over time while maintaining similar risk characteristics, including sector and geographic risks. The fund’s managers may modestly overweight equity securities that they consider undervalued, while modestly underweighting or not holding equity securities that appear overvalued.
JIRE was the result of the conversion of the $5 billion mutual fund
Active International ETFs Have Potential to Add Value
In conclusion, FENI, TOUS, and JIRE each demonstrate how actively managed international equity ETFs can achieve periods of outperformance against the MSCI EAFE Index. The success of these strategies underscores the potential value of rigorous stock selection, quantitative analysis, and active adaptability in navigating complexities and market dislocations in international markets.
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