✔ International stocks have historically offered diversification potential for a portfolio.
✔ Recently, international stocks have outpaced U.S. stocks and offered lower relative valuations by some measures.
✔ Fidelity screening tools can help you research international funds, ETFs, and stocks.
U.S. stocks have been on a tear, rising nearly 250% since the depths of the financial crisis in 2009. Along the way, they have more than doubled the returns of international stocks. But that hasn’t been the case so far in 2017. Amid questions about the U.S. political situation and more focus on the valuations of U.S. stocks, the trend has reversed, so far this year.
From January to May 18, the S&P 500® Index of large-cap U.S. stocks was up 5.8%, far behind the 11.9% gain of the MSCI® EAFE® Index of large and mid-sized stocks in developed foreign markets.1
Although it may have been years since international stocks outperformed U.S. stocks, a shift like this isn’t unusual. Over long periods, leadership of U.S. and internationals stocks has tended to alternate. For instance, during the 90s, U.S. stocks generally outperformed, but in both the 80s and for many years in the 2000s, international stocks outperformed. Investors who based their portfolio on only a few recent years of performance, may have been poorly positioned for these cycles. Those investors who had a well-diversified portfolio, with exposure to both U.S. and international stock, were likely better positioned to benefit from these shifts. That’s because combining U.S. and international stocks has historically had the potential to improve risk-adjusted performance, though it won’t guarantee that you won’t suffer a loss. (Read "5 myths of international investing.")
Fidelity’s Jurrien Timmer, director of global macro, has also made a case that now may be a particularly good time to consider rebalancing your international exposure to be in line with your long-term plan. That’s because the international business cycle seems to have improved, international stock valuations are below that of U.S. stocks, and recent weakening of the dollar has supported stronger performance abroad. (Read "Global convergence.")
Fidelity customer data suggests that during the long bull market for U.S. stocks, international stock holdings have fallen as a proportion of investor portfolios. For instance, in 2009, international stocks made up 17% of stock holdings for retail households headed up by investors in the 50-65 year old range. By 2016 that was down to 14%. For investors under 35, the move was more dramatic, from 21% in 2009 to 13% in 2016.2
Fidelity has assembled a range of diversified asset mixes that represent different risk levels, from aggressive to conservative. In these examples, the stock portion of the portfolios varies, but international stocks usually make up around 30% of the stock portion of the portfolio.
If you are looking for international investments for your portfolio, Fidelity offers some tools that can help you generate lists of ideas to research. These are not recommendations, but illustrations to help kick start the research process.
Mutual funds ideas
The Mutual Fund Evaluator3 can help you find diversified funds with international exposure. As an example, here are the results for one screen.
- You can change the criteria or explore more results.
The ETF Screener3 on Fidelity.com allows you to sort through thousands of ETFs and exchange traded notes (ETNs). Here are the top results, by net assets, for large and multi cap core or blend international ETFs.
- You can create your own criteria and explore more results.
The Fidelity Stock Screener3 can help you search for depository receipts, which is a financial instrument that trades on a U.S. stock exchange, but represents shares of a foreign company. But just looking at foreign depository receipts results in a universe of more than 400 stocks. There are lots of different ways to focus a search within that universe of securities. As an example, let’s say you were interested in dividend-paying stocks from Europe, you could try a screen like this.
- You can create your own screen and explore more results.
The bottom line
There are cases to be made for international investing, both from a long-term strategic perspective, and based on today’s investing environment. Of course, the starting point for any investment strategy should be your own plan—built on your investing goals, financial situation, and risk tolerance. If you are thinking about international investments in that context, there are plenty of options.
Or if you don’t want to do it yourself, consider a managed account or target date fund, where professional investment managers do the work for you.