3 Reasons Foreign Stock ETFs Can Outperform U.S. ETFs
3. Economic Stimulus
The Federal Reserve may delay a tapering increment and talk up current levels of monetary policy accommodation, but it is unlikely to reverse course by increasing the monthly money printing. Meanwhile, the U.S. Congress has no appetite for passing any form of fiscal stimulus in 2014. In brief, the U.S. economy is closer to having to sink or swim on its own.
In contrast, the European Central Bank is in an earlier stage of providing stimulus and recently cut its benchmark lending rate. The ECB may even emboldened by the perceived success of the Feds zero-interest-rate policy.
Considering the extent of the remarkable rallies in U.S. and Japanese stocks -- taking into account that the bulk of the gains are primarily attributable to monetary stimulus efforts -- foreign developed stocks in Europe and Asia may be in the 2014 drivers seat.
By the same token, both the euro and the yen should feel the dollar's heat, especially if the U.S. stays on its tapering course at the same time that Japan and Europe ratchet up their easing. ETF investors would benefit by hedging the currency exposure with WisdomTree Hedged Europe (HEDJ), WisdomTree Hedged Germany (DXGE) or Wisdom Tree Hedged Japan Equity (DXJ).Follow @etfexpert This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts