International ETFs Are Finally Turning Heads

MarketsETF Trends

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After years of enjoying the outperformance in U.S. equities, investors are finally looking into international stock ETFs and opportunities to diversify away from a relatively pricey U.S. market.

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"What I see is an interesting trend," Dave Mazza, Head of ETF Investment Strategy for OppenheimerFunds, said at the Inside ETFs 2018 conference. "More money actually moved into international equity ETF versus U.S. for the first time in a while there."

ETF investors have begun shifting away for overweight U.S. equity market exposure as the extended bull market pushed up valuations in domestic stocks. On the other hand, after years of underperforming the U.S., international markets are looking much more attractive and they are being supported by strengthening corporate earnings and growing economies.

"Last year, people finally saw a catalyst to diversify with improving economies outside the U.S. and relatively attractive valuations, and the money followed," Mazza added.

Furthermore, as more investors consider international investment options, many are also looking into smart beta strategies that can potential limit downside risks and still provide upside potential.

For instance, the Oppenheimer Emerging Markets Revenue ETF (NYSEARCA: REEM) is a relatively new way for investors to view emerging markets equities. REEM uses the revenue-weighting methodology Oppenheimer has had success with among U.S. equities, including dividend stocks and small-cap names.

Along with emerging market exposure, ETF investors can also consider broad global plays like the Oppenheimer Global Revenue ETF (NYSEArca: RGLB), which seeks to outperform the MSCI All Country World Index, and Oppenheimer International Revenue ETF (NYSEArca: REFA), which seeks to outperform the MSCI EAFE Index.

Revenue weighting could provide diversified exposure to the market, is not influenced by stock price, reflects a truer indication of a company’s value and offers stable sector exposure. Moreover, revenue weighting may provide a more value-oriented portfolio and historically outperformed in a value-driven market while showing lower drawdowns during growth-driven markets.

For more ETF-related commentary from Tom Lydon and other industry experts, visit our video category.

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