Investors are increasingly shifting their focus from U.S. stocks to international markets, as evidenced by the S&P 500’s underperformance compared to indices like Japan’s Nikkei 225 and South Korea’s Kospi over the past year. Concerns about overvaluation in the U.S. tech sector and a potential decline in “American exceptionalism” are prompting this trend, with many looking abroad for better growth prospects and earnings potential.
This shift has implications for portfolio diversification strategies. The iShares Core MSCI Total International Stock ETF, for instance, boasts 4,160 holdings with a competitive annualized return of 17.7% over three years and a P/E ratio significantly lower than the S&P 500. Similarly, the Vanguard International High Dividend Yield ETF has delivered impressive annualized returns of 21%, appealing to income-focused investors with a dividend yield of 3.47%.
For market professionals, the key takeaway is to consider reallocating portions of portfolios to international ETFs, particularly in light of the current U.S. market dynamics. Diversifying into international stocks may mitigate risks associated with potential downturns in the U.S. tech sector while capturing growth in emerging and developed markets.
Source: fool.com