Add international diversification with a touch of quality with this ETF
BSince economic cycles can vary from country to country, international diversification can help mitigate and provide potential growth opportunities that are not available by tilting a portfolio strictly towards domestic assets. For an added layer of risk mitigation, investors can also opt for a touch of quality.
If quality alone is not enough, active management adds additional protection for risk control. All of this can be held in a single exchange-traded fund (ETF): the American Century Quality Diversified International ETF (QINT).
QINT is designed to enhance core international exposure by applying a systematic methodology that emphasizes high-quality value and growth companies, primarily in developed markets. Characteristics of the fund according to its product website:
- Identify quality companies with strong fundamentals and attractive growth and value characteristics.
- Respond to market conditions by adjusting exposure to growth and value styles.
- Risk management through position limits and a focus on larger capitalization/less volatile stocks.
Do not be carried away by domestic prejudice
It can be easy to get caught up in a national bias, and with that country being the United States, it makes sense for investors to tailor their portfolios to the largest economy during times of economic uncertainty. However, a recent Forbes article noted that there have been periods of outperformance in international equities where the United States has appeared to falter, or, as the article puts it, “throne trading.”
“The United States currently accounts for 60% of the global equity market,” the article said. “That means investors with an extreme home bias ignore 40% of the equity universe. In truth, doing it in the last 14.5 years would have worked for you, but markets are cyclical, so it’s unlikely may it last forever.”
The article featured a chart where certain periods have seen international equities dominate. For example, in the years before and after the DotCom collapse, international equities (represented by the MSCI EAFE) strengthened as the United States reeled from the bursting of the stock market bubble on Internet.
“The United States doesn’t always dominate the global stock market! When US equities face headwinds, international equities can rise to the occasion,” the article adds. “Extended periods of outperformance by a region have been quite common historically.”
As such, this diversification could serve investors well if the United States slips into a recession following the Federal Reserve’s aggressive rate hikes. International equities could be the hedging component portfolios need these days in terms of uncertainty.
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