Amid the burden of the novel coronavirus, 2020 is shaping up to be another rough year for international equities relative to their U.S. counterparts. With international ETFs, that’s true of both developed and emerging market fare.
As of June 5, the MSCI EAFE Index and the MSCI Emerging Markets Index are each lower by more than 8% year-to-date. The S&P 500 is down just 0.2%. This isn’t unfamiliar territory for international ETFs. From 2014 through 2019, the only year in which both of the aforementioned ex-U.S. benchmarks beat the S&P 500 was 2017.
In a modicum of good news, international ETFs are showing signs of life. Over the past month, the developed markets MSCI EAFE Index is up almost 16%. Its emerging markets counterpart is higher by 14.3%.
Time will tell if there’s something meaningful behind this recent show of strength, but for the bold, here are a few international ETFs to consider.
- Freedom 100 Emerging Markets ETF (BATS:FRDM)
- WisdomTree International Hedged Quality Dividend Growth Fund (NYSEARCA:IHDG)
- VanEck Vectors Gaming ETF (NASDAQ:BJK)
Freedom 100 Emerging Markets ETF (FRDM)
Expense ratio: 0.49% per year, or $49 on a $10,000 investment
The Freedom 100 Emerging Markets ETF is an avenue to socially responsible investing in emerging markets — a strategy that can have two-fold benefits in this asset class.
First, some research suggests applications of socially responsible investment principles can be a winning long-term strategy with emerging markets equities. Second, by applying this methodology, investors can potentially limit volatility and reduce exposure to lagging companies and countries.
FRDM follows the Life + Liberty Freedom 100 Emerging Markets Index, which, as its name implies, employs a freedom weighting methodology. More specifically, countries in this international ETF are scored on economic and personal freedoms. That’s a simple explanation, but FRDM’s methodology is wide-ranging, touching on more than 20 metrics across liberty, life and personal freedoms.
Actually, it’s pretty easy to figure out which emerging markets don’t qualify for admission to FRDM. Those certainly include China and Russia. No Brazil, either. In fact, Chile and Mexico are FRDM’s only Latin American exposures.
Taiwan and South Korea combine for over 43% of the fund’s weight. On that note, those are two of the least volatile developing economies. An overweight position in those countries ensures FRDM is substantially overweight in the technology sector relative to traditional emerging markets benchmarks. That’s a positive these days.
WisdomTree International Hedged Quality Dividend Growth Fund (IHDG)
Expense ratio: 0.58% per year
Even after all these years, currency-hedged ETFs, such as the WisdomTree International Hedged Quality Dividend Growth Fund, still have critics. The criticism goes something like this: Long-term investors don’t need to worry about the effects of currency fluctuations because, over the long term, that issue tends to even itself out.
Well, “long-term” is in the eye of the beholder. The dollar has been strong for some time now and that’s despite the Federal Reserve taking interest rates to historic lows. IHDG, an alternative to international ETFs linked to the MSCI EAFE Index and comparable benchmarks, is designed to thrive as the dollar strengthens.
It’s doing that this year as the WisdomTree fund is beating the MSCI EAFE benchmark by nearly 700 basis points. Speaking of long-term investing, IHDG is topping MSCI EAFE by an almost 5-to-1 margin over the past three years.
IHDG is doing all of that while providing investors quality exposure. It also has allocations in several dependable dividend payers, which is hard to come by in 2020.
VanEck Vectors Gaming ETF (BJK)
Expense ratio: 0.66% per year
Of all three international ETFs highlighted here, the VanEck Vectors Gaming ETF is the one with the most leverage to the reopening trade — both domestically and internationally. As one of the few ETFs dedicated to casino operators, it’s practical that BJK would be enjoying some reopening ebullience.
And it really is. BJK has gained 24% over the past month.
Here’s why there could be more upside to come with BJK as 2020 moves along. While casinos are open in Macau, visits to the world’s largest gaming center are sliding and revenue is doing the same. That’s because Covid-19 forced a slew of travel restrictions affecting the lone Chinese territory where gambling is legal.
This is important for multiple reasons. First, in a normal world, Macau gaming revenue would beat Las Vegas by a roughly 3-to-1 margin. Second, Las Vegas Sands (NYSE:LVS), MGM Resorts (NYSE:MGM) and Wynn Resorts (NASDAQ:WYNN) combine to own nine Macau integrated resorts. They also account for 15% of BJK, and that doesn’t include the other 13.1% the fund devotes to China,
Bottom line is Macau is far more important to the global gaming scene, speaking in revenue terms, than Las Vegas. And as travel controls ease, the floodgates of gamblers will reopen, potentially providing BJK with some runway for gains in the second half of 2020.
Todd Shriber has been an InvestorPlace contributor since 2014. As of this writing, he did not hold a position in any of the aforementioned securities.