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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. |
Additionally, there is good reason to believe that large value stocks will,
in the long run and on average, tend to have higher risk-adjusted returns than
large growth stocks.
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)
| DFA International Value Portfolio (DFIVX). E/R: 0.43%.
This fund invests in stocks of foreign companies whose market capitalization
is at least $800M and whose book-to-market ratio is in the upper 30% of the
investment universe for each country. Country weighting conforms to that
of the MSCI EAFE index.
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| iShares Edge MSCI Intl Value Factor ETF (IVLU). E/R:
0.30%. This ETF tracks the MSCI World ex USA Enhanced Value Index of valuey large cap
stocks from developed market countries excluding the US. For more information on ETFs, see here.
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| iShares MSCI EAFE Value Index Fund (EFV). E/R:
0.39%. This ETF tracks the MSCI EAFE Value Index of valuey large cap
stocks from non-North American developed market countries. For more information on ETFs, see here.
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| Schwab Fundamental International Large Company Index Fund (SFNNX).
E/R: 0.35%. This fund tracks the Russell Fundamental Developed ex-U.S.
Large Company Index, a non-cap weighted
index of non-US developed market large cap stocks.
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| WisdomTree International LargeCap Dividend Fund (DOL). E/R: 0.48%.
This is an ETF which tracks the WisdomTree International LargeCap Dividend
Index. This index consists of the 300 largest (by market cap) companies
in the WisdomTree WisdomTree Dividend Index of Europe, Far East Asia and
Australasia (the “WisdomTree DIEFA Index”). The index weights the 300
companies by the cash value of their dividend payouts. For more information on ETFs, see here.
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| Invesco FTSE RAFI Developed Markets ex-US Portfolio ETF (PXF). E/R:
0.47%. This ETF tracks the FTSE RAFI Developed ex-US Index of valuey large cap
stocks from non-US developed market countries. For more information on ETFs, see here.
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| Vanguard International Value Fund (VTRIX). E/R: 0.46.
This is an actively managed fund. This fund simply isn't very valuey. DFIVX
is DRAMATICALLY more “valuey” (i.e., significantly higher b/m ratio) than
this fund.
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| Alpha Architect International Quant Value ETF (IVAL). E/R:
0.59%. This ETF tracks the Alpha Architect International Quantitative
Value Index. This index is valuey and strong in exposure to
profitability. This fund is too expensive for what it delivers,
compared with the less expensive funds above. For more information on ETFs, see
here.
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| DFA Tax-Managed International Value Portfolio (DTMIX). E/R: 0.53%.
This fund invests in stocks of foreign companies whose market capitalization
is at least $800M and whose book-to-market ratio is in the upper 30% of the
investment universe for each country. Country weighting conforms to that
of the MSCI EAFE index. The fund manages to minimize capital gains
distributions.
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| iShares Edge MSCI Intl Value Factor ETF (IVLU). E/R:
0.30%. This ETF tracks the MSCI World ex USA Enhanced Value Index of valuey large cap
stocks from developed market countries excluding the US. As an ETF,
this fund is expected to be perfectly capital-gains tax efficient. For more information on ETFs, see here.
|
| iShares MSCI EAFE Value Index Fund (EFV). E/R:
0.39%. This ETF tracks the MSCI EAFE Value Index of valuey large cap
stocks from non-North American developed market countries. As an ETF,
this fund is expected to be perfectly capital-gains tax efficient. For more information on ETFs, see here.
|
| Invesco FTSE RAFI Developed Markets ex-US Portfolio ETF (PXF). E/R:
0.47%. This ETF tracks the FTSE RAFI Developed ex-US Index of valuey large cap
stocks from non-US developed market countries. For more information on ETFs, see here.
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| Schwab Fundamental International Large Company Index ETF (FNDF).
E/R: 0.32%. This fund tracks the Russell Fundamental Developed ex-U.S.
Large Company Index, a non-cap weighted
index of non-US developed market large cap stocks.
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| Alpha Architect International Quant Value ETF (IVAL). E/R:
0.59%. This ETF tracks the Alpha Architect International Quantitative
Value Index. This index is valuey and strong in exposure to
profitability. This fund is too expensive for what it delivers,
compared with the less expensive funds above. As an ETF, it is reasonable to expect this fund to be
perfectly capital gains tax efficient. For more information on ETFs, see
here.
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| DFA International Value Portfolio (DFIVX). E/R: 0.43%.
This fund invests in stocks of foreign companies whose market capitalization
is at least $800M and whose book-to-market ratio is in the upper 30% of the
investment universe for each country. Country weighting conforms to that
of the MSCI EAFE index.
|
| WisdomTree International LargeCap Dividend Fund (DOL). E/R: 0.48%.
This is an ETF which tracks the WisdomTree International LargeCap Dividend
Index. This index consists of the 300 largest (by market cap) companies
in the WisdomTree Dividend Index of Europe, Far East Asia and Australasia (the
“WisdomTree DIEFA Index”). The index weights the 300 companies by the
cash value of their dividend payouts. As an ETF, this fund is expected
to be more (capital gains) tax-efficient than the non-ETFs listed here.
For more information on ETFs, see here.
|
| Vanguard International Value Fund (VTRIX). E/R: 0.46%.
This is an actively managed fund. This fund simply isn't very valuey.
Both DTMIX and DFIVX are DRAMATICALLY more “valuey” (i.e., significantly
higher b/m ratio) than this fund. |
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. |
