This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Foreign Developed ETFs vs. Domestic Stock ETFs

Stocks in this article: VWO SCZ VGK EZU IWM EAFE EFA BLK HEDJ SPY DIA

NEW YORK (ETF Expert) -- Investors who allocated a portion of their capital abroad have been experiencing a whole lot of performance envy lately.

For instance, those who concentrated their dollars in the S&P 500 last year savored 30% price appreciation, while those who allocated some money to the MSCI EAFE Index struggled to come to terms with a disappointing 18%. Heaven forbid you believed that emerging market valuations were so cheap that you had placed a small stake in the MSCI Emerging Market Index; exchange-traded funds tracking the index actually lost value in 2013.

Perhaps unfortunately, U.S. Federal Reserve "tapering" is liable to increase borrowing costs and dent currencies in developing countries. Couple the reduction in electronic dollar printing with an exodus of capital from up-n-coming regions, and the prospect for a turnaround in Vanguard Emerging Markets (VWO) appears to be a crisis or two away. Worse yet, the technical deterioration associated with the dreaded "black cross" - the 50-day moving average crossing below its 200-day moving average - is likely to coincide with additional downside in price.

Not everything is as gloomy abroad as it seems at first blush, however. A flash eurozone manufacturing indicator in January jumped to its highest level in two-and-a-half years (53.9). What's more, whereas the U.S. central bank (i.e., Federal Reserve) feels pressure to taper (a.k.a. "tighten") or maintain its current level of monetary accommodation, the European Central Bank actually has room to loosen its policy to support investor sentiment as well as boost economic growth. With price-to-earnings ratios in the U.S. at lofty levels by most traditional measures, the eurozone has been looking better.

This is not to suggest that Europe is without risk. On the contrary: The entire continent has plenty of walls of worry to climb. Nevertheless, it is worth noting the month-over-month differences between key foreign developed stock ETFs and U.S. stock ETFs. Might the percentages represent a January barometer of relative strength?

Performance Shift Overseas?        
            1 Month %
             
iShares MSCI Small Cap EAFE (SCZ)     0.4%
Vanguard Europe (VGK)       -1.0%
iShares MSCI European Monetary Union (EZU)   -1.2%
iShares MSCI EAFE Index (EFA)       -1.7%
WisdomTree Hedged Europe (HEDJ)     -2.0%
             
S&P 500 SPDR Trust (SPY)       -2.6%
Dow Jones Industrials (DIA)       -3.2%
             

According to Russ Koesterich at BlackRock (BLK), there have been 14 calendar years since 1954 when interest rates and P/E ratios both rose in the U.S. The average return in the following year for the S&P 500? Just 2.3%. Raising some cash to buy U.S. stocks on a significant selloff may have a greater probability of success on the domestic front than holding-n-hoping throughout 2014.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,224.61 +33.24 0.19%
S&P 500 1,996.87 -5.29 -0.26%
NASDAQ 4,615.2630 -22.7310 -0.49%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs