This Quarter, the S&P 500 Has Fallen Behind ETFs Targeting Global Stocks Outside the U.S

This week’s ETF Wrap delves into how international stocks are stacking up against the S&P 500, with a particular focus on the performance of single-country funds. While international stocks have outperformed U.S. equities this quarter, they still lag behind the S&P 500 significantly over the year. However, a few single-country ETFs have stood out in 2024.

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The iShares MSCI ACWI ex U.S. ETF, which tracks global stocks outside of the U.S., has risen 3.3% in the third quarter, surpassing the 2.2% gain of the SPDR S&P 500 ETF Trust over the same period, according to data from FactSet. Despite this recent outperformance, the S&P 500, a key index of U.S. large-cap stocks, has surged 17% so far this year, while global equities, as measured by the iShares MSCI ACWI ex U.S. ETF, have only gained 7.5%.

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James St. Aubin, the chief investment officer of Ocean Park Asset Management, emphasized the importance of not overlooking international markets. He warned that focusing solely on U.S. stocks could limit investors' opportunities, even though the U.S. market has historically outperformed global equities.

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Some single-country ETFs have managed to outpace the S&P 500’s gains in 2024, according to a note from Bespoke Investment Group. These include funds focused on Argentina, Turkey, Malaysia, Peru, and Taiwan. For instance, the Global X MSCI Argentina ETF, the iShares MSCI Turkey ETF, the iShares MSCI Malaysia ETF, the iShares MSCI Peru and Global Exposure ETF, and the iShares MSCI Taiwan ETF all posted larger year-to-date increases than the S&P 500.

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However, by Thursday, only the Global X MSCI Argentina ETF and the iShares MSCI Malaysia ETF were still ahead of the S&P 500’s 17% year-to-date rise. Bespoke highlighted that the Global X MSCI Argentina ETF saw an 11% jump on the first trading day after President Javier Milei’s election victory in November last year. In contrast, the iShares MSCI Mexico ETF has struggled, falling 20.3% this year, while the iShares MSCI Brazil ETF and the iShares MSCI Hong Kong ETF have also underperformed in 2024.

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Ocean Park Asset Management focuses on risk management through a trend-following process with its Ocean Park International ETF. This fund is designed to allocate tactically between international equity ETFs, aiming to capture uptrends while avoiding sharp declines by moving to cash or other rising positions in the portfolio. As of Wednesday, the Ocean Park International ETF’s largest holding was the Vanguard FTSE All-World ex-US Index Fund, accounting for about 48% of its portfolio, followed by a 25% weight in the Vanguard FTSE Emerging Markets ETF.

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Other positions in the fund include smaller allocations to the Vanguard International Dividend Appreciation ETF, the iShares MSCI EAFE Small-Cap ETF, and the iShares MSCI Emerging Markets Min Vol Factor ETF. The fund also holds minor exposures to specific countries, including Brazil, Australia, Japan, Taiwan, and Mexico. On Thursday, shares of the Ocean Park International ETF fell 1%, while the SPDR S&P 500 ETF Trust declined by 0.8%, according to data.

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Yardeni Research, in a note earlier this week, expressed a preference for U.S. financial markets over international ones, maintaining a “Stay Home” investment bias. Yardeni noted that they believe the U.S. economy is not just returning to pre-pandemic conditions but resetting at a higher level. They suggested that this could lead to sustained economic growth without triggering higher inflation.

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As usual, the ETF Wrap includes a rundown of the top- and bottom-performing ETFs over the past week, based on FactSet data.

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