With U.S. stocks hitting all-time highs, it’s probably time to rebalance the global part of your portfolio — and that should mean a dip into some international ETFs.
Yes, it has been a great year for U.S. equities, especially compared with the rest of the world. The S&P 500 is up 22% for the year-to-date, a performance that lags only Japan’s Nikkei and the U.K.’s FTSE 100 among the word’s major indices.
Unfortunately, those robust gains have left U.S. stocks looking fairly valued at best — and uncomfortably pricey at worst. That’s why a trip into international ETFs might be the most prudent measure right now.
Market strategists at BlackRock (BLK) recommend clients take some money out of their U.S. positions and reallocate it to foreign developed and emerging markets. With much of the rest of the world’s bourses underperforming this year, there’s no shortage of overseas equities that are not only cheaper than the S&P 500, but offer much higher yields as well, BlackRock notes.
If you’re looking for ideas, we’ve got a few. We have picked the three most promising international ETFs where the markets are both cheaper than the S&P 500 and offer generous yields. (The yield on the S&P 500 currently stands at 1.9%.) Take a look:
iShares MSCI Australia (EWA)
Total Assets: $2.1 billion
As a major commodities exporter with close economic ties to east Asia, Australia is getting hit hard by the weak global economy — especially the slowdown in China.
Gross domestic product was growing at a blistering annualized rate of as much as 5% before the financial crisis of 2008. Now it’ll be lucky to finish the year with 2%.
That has been hard on Australia equities, but then, that keeps prices down and yields up. Furthermore, the market’s generous yield makes it easier to wait for these stocks to bounce back.
The iShares MSCI Australia (EWA) has gained just 2.9% for the year-to-date. Top holdings include Commonwealth Bank of Australia (CMWAY), BHP Billiton (BHP) and Westpac Banking (WBK).
iShares MSCI New Zealand Capped (ENZL)
Total Assets: $147.3 million
A tiny economy closely linked to Australia and Asia, New Zealand equities have held up rather well considering regional sluggishness.
New Zealand’s GDP topped out at a annualized pace of 3.4% in the post-crisis period and has been slowly softening ever since. Forecasts put growth at a tepid 2.4% for all of 2013.
A relatively strong currency isn’t helping exports, but the country is recovering from a drought and consumption is picking up, which points to stronger growth ahead.
The iShares MSCI New Zealand Capped ETF (ENZL) has managed to scrape out a 13.6% gain for the year-to-date. Top holdings include Fletcher Building (FRCEF), Telecom Corporation of New Zealand (NZTCY) and Auckland International Airport.
iShares MSCI Singapore (EWS)
Total Assets: $1.2 billion
Singapore — a hot market for years — was looking a bit too pricey for new money, but then emerging markets got clobbered over the summer on fears of Federal Reserve tapering.
That has created a better entry point for investors looking for exposure to an economy that’s growing at better than a 5% annualized pace.
True, emerging markets are at the mercy of Fed policy, but between the government shutdown and the new Fed chief being a committed dove, tapering fears have been shelved for now.
The emerging-market selloff left the iShares MSCI Singapore (EWS) down 0.7% on the year, making it a good time to buy low. Top holdings include Singapore Telecommunications (SGAPY), United Overseas Bank (UOVEY) and Oversea-Chinese Banking.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.