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There is at least one good reason why most investors should consider
investing a portion of
their portfolios in foreign stocks:
 | Foreign stocks have imperfect correlations with domestic stocks,
so including them in a portfolio should improve the
portfolio's risk/return characteristics. |
For more information on investing overseas, see
here.
There are several similar-seeming investment options
available. Which is best?
The funds are listed in rough order of our overall preference.
Preferences are listed separately for use in
retirement accounts and for taxable accounts.
For a listing of our preferences in other asset classes, see
here.
Retirement Accounts (i.e., tax-deferred or tax-exempt accounts)
| iShares MSCI International Developed Momentum Factor ETF (IMTM). E/R: 0.30%.
This fund tracks the MSCI World ex USA Momentum Index of large- and mid- cap stocks
in developed mkt countries outside the US which have been exhibiting strong
risk-adjusted price momentum over the past 6- and 12- month periods. For more
information on momentum investing, see
here.
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| Invesco S&P International Developed Momentum Portfolio ETF (IDMO). E/R:
0.25%. This fund tracks the S&P Momentum Developed ex U.S. & South
Korea LargeMidCap Index of non-US Developed-Markets large-cap stocks which
have been exhibiting strong risk-adjusted price momentum over the
past 12 months (excluding the most recent month). For more
information on momentum investing, see
here.
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| AQR International Momentum Style Fund (AIMOX). E/R: 0.55%.
This fund invests in large non-US developed mkt momentum stocks (i.e., stocks
that have done well over the past 12 months, excluding the most recent
month). Momentum has been shown to have both a positive risk premium
and a negative correlation with the value premium. Thus, momentum
stocks are good diversifiers to value stocks. As such, this fund is
most appropriate for those who are using it to both get large cap non-US
developed mkts exposure and to diversify value exposure elsewhere in their
portfolio. This fund manages to lesson short-term capital gain and
dividend distributions. For more information on momentum
investing, see here.
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| Alpha Architect International Quantitative Momentum ETF (IMOM). E/R: 0.39%.
The Alpha Architect International Quantitative Momentum ETF tracks an
equal-weighted index of developed-market ex-US stocks with strong and
consistent momentum. IMOM targets the 10% of stocks with the highest
total return over the last 12 months, excluding the most recent
month. The fund also screens for consistency of momentum by
excluding stocks with too many negative-return days during the
12-month period. This methodology produces a few dozen holdings
which get weighted equally. We don't like that the fund has
such a relatively high expense ratio and relatively few holdings.
For more information on momentum investing, see
here.
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| Invesco DWA Developed Markets Momentum ETF (PIZ).
E/R: 0.80%. This fund tracks the Dorsey Wright Developed
Markets Technical Leaders Index of non-US Developed-Markets
large-cap stocks which have been exhibiting strong relative strength. For more
information on momentum investing, see
here.
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| DFA International High Relative
Profitability Portfolio (DIHRX). E/R: 0.30%. This
fund targets stocks in the largest 90% of stocks in non-US developed
mkt countries. They they take the most profitable 35% of those
stocks and apply roughly market weights to them.
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| DFA International High Profitability ETF
(DIHP). E/R: 0.29%. This fund targets stocks in the
largest 90% of stocks in non-US developed mkt countries. They they
take the most profitable 35% of those stocks and apply roughly
market weights to them.
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| DFA International Core Equity Market ETF (DFAI).
E/R: 0.18%. This fund invests in non-US developed mkt
countries while emphasizing stocks with lower market cap, lower
relative price, and higher profitability. Even though it isn't
really "style pure," we think that, as impure as it may be, it is
one of the best (mostly) large cap foreign developed mkts funds for
a retirement account.
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| Vanguard Developed Markets Index Fund Admiral Shares (VTMGX). E/R: 0.07%. This fund is an
FTSE Developed All Cap ex US Index Fund.
There is a $10,000 initial minimum purchase requirement.
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| SPDR Portfolio World ex-US ETF (SPDW).
E/R: 0.03%. This ETF tracks the S&P Developed ex-US BMI Index
of non-US developed market large cap stocks, including those in
Canada (which are left out of the MSCI EAFE index)..
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| Vanguard Developed Markets Index ETF (VEA).
E/R: 0.05%. This ETF is a share class of the Vanguard
Developed Markets Fund (VTMGX). It attempts to track the FTSE
Developed All Cap ex US Index.
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| BNY Mellon International Equity ETF (BKIE).
E/R: 0.04%. This ETF attempts to track the Morningstar
Developed Mkts ex-US Large Cap Index of large Developed Mkts
companies outside the US.
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| iShares MSCI EAFE International Index Fund (MAIIX). E/R: 0.09%.
This fund tracks the MSCI EAFE Index of non-North American Developed Market
stocks.
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| Schwab International Equity ETF (SCHF).
E/R: 0.06%. This ETF tracks the FTSE Developed ex-US Index of
large cap stocks in developed markets outside the US. We like this fund because it is
more diversified than VDMAX and it should have less tracking error than VEA.
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| iShares Core MSCI EAFE ETF (IEFA).
E/R: 0.07%. This ETF tracks the MSCI EAFE Investable Market
Index.
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| iShares Edge MSCI Minimum Volatility EAFE ETF (EFAV).
E/R: 0.20%. This ETF tracks the MSCI EAFE Minimum Volatility
Index.
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| Avantis International Equity Fund (AVDEX). E/R: 0.23%. This
fund
buys non-US developed mkt stocks, with a distinct "tilt" towards those that
are smaller, more valuey, and more profitable. As such, this isn't as
"style pure" as several of the other funds.
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| Avantis International Equity ETF (AVDV).
E/R: 0.23%. This ETF buys non-US developed mkt stocks, with a
distinct "tilt" towards those that are smaller, more valuey, and
more profitable. As such, this isn't as "style pure" as
several of the other funds.
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| DFA Large Cap International Portfolio (DFALX). E/R: 0.17%.
This fund invests in large-cap stocks (i.e., top 80% of market capitalization
in each country) from developed markets outside of North America. This fund’s
target country allocation roughly conforms to the MSCI EAFE index. However,
they don’t necessarily buy stocks with the goal of replicating the index. They
buy stocks using a sampling methodology, but they attempt to weight each stock
according to its market capitalization (like the index does). Their
methodology suggests that their pre-expense returns ought to be similar to
those of the MSCI EAFE Index. They attempt to add value by not having to
slavishly follow the index – thus avoiding certain problems that all true
index funds have regarding reconstitution.
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| iShares MSCI EAFE Index Fund (EFA).
E/R: 0.33%. This ETF tracks the MSCI EAFE index. We see
no good reason to buy it in retirement accounts.
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| T.Rowe Price International Equity Index Fund (PIEQX). E/R: 0.30%.
This fund tracks the FTSE Developed Ex. North America Index of large-cap
foreign stocks.
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| PIMCO International StocksPLUS TR Strategy Fund Institutional Shares (PISIX). E/R: 0.75%. This
is an "enhanced" MSCI EAFE Index Fund (a.k.a., a "synthetic" index fund).
It buys MSCI EAFE index derivatives (e.g., futures, swaps, etc.) and invests
the remaining cash in short to intermediate term bonds in an attempt to
outperform the index. While the expense ratio seems steep, keep in mind
that this fund would be immune from foreign tax withholding, which makes its
effective expense ratio lower by about 15% of the current yield, when
comparing to the other funds here.
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| BNY Mellon Intl Stock Index Fund (DIISX). E/R: 0.60%. This
is an MSCI EAFE Index Fund. |
| iShares MSCI International Developed Momentum Factor ETF (IMTM).
E/R: 0.30%. This fund tracks the MSCI World ex USA Momentum Index of
large- and mid- cap stocks in developed mkt countries outside the US which
have been exhibiting strong risk-adjusted price momentum over the past 6-
and 12- month periods. For more
information on momentum investing, see
here.
|
| Invesco S&P International Developed Momentum Portfolio ETF (IDMO).
E/R: 0.25%. This fund tracks the S&P Momentum Developed ex U.S. &
South Korea LargeMidCap Index of non-US Developed-Markets large-cap stocks
which have been exhibiting strong risk-adjusted price momentum over the past
12 months (excluding the most recent month). For more
information on momentum investing, see
here.
|
| Alpha Architect International Quantitative Momentum ETF (IMOM).
E/R: 0.39%. The Alpha Architect International Quantitative Momentum ETF tracks an equal-weighted index of developed-market ex-US stocks with
strong and consistent momentum. IMOM targets the 10% of stocks with
the highest total return over the last 12 months, excluding the most recent
month. The fund also screens for consistency of momentum by excluding stocks
with too many negative-return days during the 12-month period. This
methodology produces a few dozen holdings which get weighted equally.
We don't like that the fund has such a relatively high expense ratio and
relatively few holdings.
For more information on momentum investing, see
here.
|
| AQR International Momentum Style Fund (AIMOX). E/R: 0.55%.
This fund invests in large non-US developed mkt momentum stocks (i.e., stocks
that have done well over the past 12 months, excluding the most recent
month). Momentum has been shown to have both a positive risk premium
and a negative correlation with the value premium. Thus, momentum
stocks are good diversifiers to value stocks. As such, this fund is
most appropriate for those who are using it to both get large cap non-US
developed mkts exposure and to diversify value exposure elsewhere in their
portfolio. This fund manages to lesson short-term capital gain and
dividend distributions. For more information on momentum
investing, see here.
|
| Invesco DWA Developed Markets Momentum ETF (PIZ).
E/R: 0.80%. This fund tracks the Dorsey Wright Developed Markets
Technical Leaders Index of non-US Developed-Markets large-cap stocks which
have been exhibiting strong relative strength. For more
information on momentum investing, see
here.
|
| DFA International High Profitability ETF (DIHP).
E/R: 0.29%. This fund targets stocks in the largest 90% of stocks in
non-US developed mkt countries. They they take the most profitable 35% of
those stocks and apply roughly market weights to them.
|
| DFA International Core Equity Market ETF (DFAI).
E/R: 0.18%. This fund invests in non-US developed mkt countries while
emphasizing stocks with lower market cap, lower relative price, and higher
profitability. Even though it isn't really "style pure," we think
that, as impure as it may be, it is one of the best (mostly) large cap
foreign developed mkts funds.
|
| Vanguard Developed Markets Index Fund Admiral Shares (VTMGX).
E/R: 0.07%. This fund is an FTSE Developed All Cap ex US Index Fund. There is a $10,000 initial minimum
purchase requirement. The existence of an ETF share class
should further help it become even more capital gains tax efficient.
|
| SPDR Portfolio World ex-US ETF (SPDW).
E/R: 0.03%. This ETF tracks the S&P Developed ex-US BMI Index of
non-US developed market large cap stocks, including those in Canada (which
are left out of the MSCI EAFE index). As an ETF, this fund is expected
to be more (capital gains) tax-efficient than the non-ETFs listed here.
|
| Vanguard Developed Markets Index ETF (VEA).
E/R: 0.05%. This ETF is a share class of the Vanguard Developed
Markets Index Fund (VTMGX). It attempts to track the FTSE Developed
All Cap ex US Index. While ETFs tend to be more tax efficient than
conventional mutual funds, Vanguard ETFs are an exception — these ETFs will
be merely as tax efficient as their underlying conventional funds — VTMGX
(no more, no less), but with a lower expense ratio. The existence of
an ETF share class should further help it become even more capital gains tax
efficient.
|
| Schwab International Equity ETF (SCHF).
E/R: 0.06%. This ETF tracks the FTSE Developed ex-US Index of large
cap stocks in developed markets outside the US.
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| iShares Core MSCI EAFE ETF (IEFA).
E/R: 0.07%. This ETF tracks the MSCI EAFE Investable Market Index.
|
| iShares Edge MSCI Minimum Volatility EAFE ETF (EFAV).
E/R: 0.20%. This ETF tracks the MSCI EAFE Minimum Volatility Index.
|
| BNY Mellon International Equity ETF (BKIE).
E/R: 0.04%. This ETF attempts to track the Morningstar Developed Mkts
ex-US Large Cap Index of large Developed Mkts companies outside the US.
|
| Avantis International Equity ETF (AVDV).
E/R: 0.23%. This ETF buys non-US developed mkt stocks, with a distinct
"tilt" towards those that are smaller, more valuey, and more profitable.
As such, this isn't as "style pure" as several of the other funds.
|
| iShares MSCI EAFE Index Fund (EFA).
E/R: 0.33%. This ETF tracks the MSCI EAFE index. As an ETF, this
fund is expected to be more (capital gains) tax-efficient than the non-ETFs
listed here. |
This web page contains the current opinions of Eric E. Haas at the time it is
written—and such opinions are subject to change
without notice. This web page is intended to serve two purposes:
| To educate the public; and |
| To provide disclosure of Mr. Haas' opinions to prospective clients.
We believe that prospective clients are well-served by being made aware of
what they are buying—and what they are buying is advice
that is based on these opinions. |
We believe the information provided here to be useful and accurate at the time
it is written.
Information contained herein has been obtained from sources believed to be
reliable, but is not guaranteed.
No investor should invest solely on the basis of information listed here.
Before investing, it is important to consult each prospective investment's
prospectus and consider both its risk/return characteristics and its effect on
your overall portfolio.
This information is not intended to be a
substitute for specific individualized tax, legal, or investment planning
advice. Where specific advice is necessary or appropriate, Altruist
recommends consultation with a qualified tax adviser, CPA, financial planner, or
investment adviser. If you would like to discuss the rationale or support
for any particular idea expressed on this web page, feel free to
contact us.
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