5 International ETFs Beating The S&P 500 In Q1

The U.S. stock market hit multiple record highs on several occasions this year, but the real encouragement came from international investing. Despite a strong dollar, most of the developed and developing markets broke free from last year’s malaise of slow growth and have started to show strength on monetary easing policies.

This is especially true as Vanguard FTSE All World X US (NYSE:VEU)targeting the international equity market has gained about 6% so far this year compared to a gain of 4.5% for iShares MSCI ACWI Index Fund (NASDAQ:ACWI), which targets the global stock market including the U.S.

Japan came out of recession and sentiments are turning bullish on Europe. Notably, German blue chip DAX 30 index got boost from the launch of trillions of euro bond-buying program by the European Central Bank (ECB) and the continued slide of euro and breached 12,000 for the first time in its history.

In the emerging market world, Russia is finding its footing this year while India and China continue to show resilience. In fact, Chinese stocks have been on a tear with the Shanghai Composite Index breaking the key resistance level of 3,400 last week to hit an almost seven-year high. Further, oil has rebounded from its multi-year low reached in January, spreading optimism across the globe.

Strong sentiments are likely to continue on the international bourses as the Fed set the stage for a slower-than-expected interest rate rise in its latest FOMC meeting, citing concerns on inflation and economic growth. The move will continue to weaken the U.S. dollar and attract more foreign inflows, raising the appeal for the equities in these nations.

Given improving international trends, many ETFs have generated handsome returns and easily crushed the broad market fund (SPY - ETF report) by wide margins from a year-to-date look. Investors should note that the ETF winners are not confined to a specific region but are spread out across various corners of the world.

Below, we have highlighted five country ETFs that have been the star performers at the tail end of the first quarter of this year and have led the international space higher. This trend is likely to continue as long as the current trends persist.

db X-trackers Harvest CSI 500 China-A Shares Small Cap Fund

This fund provides direct exposure to the small-cap segment of the China A-share equity market (Shanghai and Shenzhen stock exchanges) by tracking the China Securities 500 Index. Holding 504 stocks in its basket, the product is widely spread out across components with each accounting for less than 0.9% share.

However, industrials take the top position from a sector look with one-fourth allocation while materials, consumer discretionary and information technology round off the next three spots. The product has amassed $38.2 million in AUM and sees lower trading volume of about 24,000 shares a day on average. It charges about 80 bps in fees per year from investors and has surged about 31.3% so far this year. The fund has a Zacks ETF Rank of 3 or ‘Hold’ rating.

db X-trackers MSCI Ger Hgd Eq (NYSE:DBGR)

This fund offers exposure to German stocks while at the same time provides hedge against any fall in the euro. It tracks the MSCI Germany US Dollar Hedged Index holding 55 securities with double-digit allocation to the top firm – Bayer (XETRA:BAYGN). Other firms do not hold more than 7.55% of assets.

Further, the ETF has a slight tilt toward consumer discretionary with 22.2% share, followed by financials (12.4%), health care (15.3%) and materials (13.8%). The fund has AUM of around $167.4 million and average daily volume of more than 75,000 shares. Expense ratio came in at 0.45%. DBGR gained 23.2% in the year-to-date time frame and has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a Medium risk outlook.

WisdomTree Japan Hedged Health Care Fund

This ETF targets the health care segment of the Japanese equity world without the currency risk. It follows the WisdomTree Japan Hedged Health Care Index and holds 53 stocks in its basket. The fund is concentrated on the top two holdings – Takeda Pharmaceutical Co., Ltd. (TOKYO:4502) and Astellas Pharma Inc. (TOKYO:4503) – with double-digit exposure each.

In terms of industrial exposure, pharma dominates the return with over two-third of the portfolio while health care equipment makes up for 15.6% share. The product is unpopular and illiquid as depicted by its AUM of only $1.5 million and average daily volume of under 2,000 shares. It charges investors 43 bps in annual fees and has added over 21% so far in this year. The fund has a Zacks ETF Rank of 3.

Global X FTSE Argentina 20 (NYSE:ARGT)

The ETF tracks the MSCI All Argentina 25/50 Index, which measures the performance of the 20 largest and most liquid companies that directly participate in the Argentine economy, but are not listed in the country. Holding 26 stocks in its basket, the fund is highly concentrated on the top two firms at 32.8% while other firms hold less than 6.8% share (see: all the Latin American ETFs here).

With respect to sectors, energy makes up for one-third of the portfolio followed by double-digit exposure to financials and technology. The fund has managed $17.7 million in its asset base and trades in average daily trading volume of nearly 23,000 shares. The product charges 75 bps in fees and expenses and is up over 17% in the year-to-date time frame. The fund has a Zacks ETF Rank of 4 or ‘Sell’ rating with a High risk outlook.

MarketVectors TR Russia (NYSE:RSX)

This product is popular and liquid with AUM of $1.8 billion and average daily volume of around 15.7 million shares. It tracks the Market Vectors Index and charges 63 bps in fees per year from investors. Holding 50 securities in its basket, the fund is heavily concentrated on the top 10 holdings with 59.2% of total assets (read: Should You Try Bottom Fishing in Russia ETFs on Rate Cut?).

In terms of sectors, energy dominates with more than two-fifths of the total portfolio while materials, financials and consumer staples round off to the next three spots with double-digit allocation each. The ETF has added about 15.5% in the year-to-date time frame and has a Zacks ETF Rank of 4 with a High risk outlook.

Bottom Line

Investors should note that the last two ETFs mentioned above have an unfavorable Zacks Rank, suggesting that these will underperform the broad market index over the next one-year period. However, the short-term outlook remains encouraging given the large amount of cheap money flowing into the economy.

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