While it is unlikely that highly correlated assets like U.S. stocks and European/Pacific equities would decouple the way that the developed and undeveloped markets have, many European stock ETFs are 15%-25% cheaper than their U.S. counterparts (on a P/E basis). It follows that, hypothetically speaking, a fund like iShares MSCI European Monetary Union (EZU) might gain 18%-20% in a year where the S&P 500 SPDR Trust (SPY) collects 6% (1/3 of which came via dividends).
Allocating to iShares Small Cap EAFE (SCZ) may be particularly rewarding. It trades at a 40% P/E discount to the iShares Russell 2000 Small Cap Fund (IWM). And while small caps are trading at a premium to large caps stateside, the opposite is true for developed Europe/Asia/Far East (EAFE).
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.