With the Japanese market's impressive performance last year, there's been a renewed surge of interest in international equities. This resurgence is particularly intriguing given that, on the whole, valuations in foreign markets remain more attractive compared to those in the U.S.
This growing fascination with international equities coincides with the rise of actively managed ETFs. Unlike their passively managed counterparts, these ETFs are not bound to follow an index strictly. Instead, they leverage the expertise of their managers to make strategic investment decisions aimed at outperforming a benchmark.
In 2023, many of these actively managed ETFs didn't just meet expectations; they exceeded them, showcasing their ability to navigate the complexities of international markets effectively. Here's a look at two standout active international equity ETFs I think investors should keep on their radar this year.
BNY Mellon Concentrated International ETF (BKCI)
BKCI focuses on a concentrated portfolio of 25-30 stocks. This selection is based on rigorous bottom-up fundamental research, targeting companies that exhibit sustainable earnings growth and robust cash flows.
BKCI adopts a buy-and-hold approach, characterized by low turnover, which underscores its commitment to investing in quality businesses for the long term.
It is my belief that this concentrated strategy is a significant advantage for investors, especially when considering the 0.8% fee for active management. With BKCI, the managers seek a high active share, meaning the ETF's holdings diverge significantly from those of its benchmark, ensuring that you're not merely paying for "closet indexing."
Instead, you're benefiting from the discerning eye of advisors and portfolio managers who have the freedom to identify and capitalize on the best opportunities across international markets, unconstrained by benchmark compositions.
In 2023, BKCI demonstrated its effectiveness by returning 20.25% as of December 31, outperforming the MSCI EAFE index, which posted an 18.24% return.
The ETF's top holdings underscore its focus on companies with massive brand recognition, strong competitive moats, and solid balance sheets and cash flows, factors that are critical for long-term success in international investing.
Notable top holdings within BKCI's portfolio currently include:
- Alimentation Couche-Tard at 5.73%
- Novo Nordisk (CSE:NOVOb) A/S-B at 4.95%
- SAP SE (ETR:SAPG) at 4.95%
- Compass Group (LON:CPG) PLC at 4.92%
- ASML Holding (AS:ASML) NV at 4.19%
- LVMH Moet Hennessy Louis Vuitton SE at 4.03%
- Taiwan Semiconductor Manufacturing Co., Ltd at 3.94%
Past Performance is no Guarantee of Future Results.
For important information on BKCI, disclosures and risks, please click here.
Dimensional International Small Cap Value ETF (DISV)
Dimensional Fund Advisors (DFA) have garnered considerable success in recent years by translating their renowned factor investing strategies into the active ETF format.
A prime example of this successful translation is DISV, which in 2023 showcased impressive performance by returning 19.6%, thus outperforming its benchmark, the MSCI World ex USA Small Value Index.
DISV exemplifies a factor ETF that zeroes in on smaller capitalization companies characterized by lower relative prices or higher profitability. The ETF employs a rigorous process to assess value, focusing on stocks with low prices relative to their book values.
Profitability is evaluated through metrics such as earnings or profits in relation to book value or assets, and the strategy is further refined with a momentum screener to identify stocks demonstrating positive trends.
Investing in DISV offers exposure to a broad portfolio of 1,487 stocks, with an average market capitalization of $2.7 billion and an average price-to-book ratio of 0.82.
This extensive diversification across various international small-cap stocks underpins the ETF's appeal to investors looking to tap into the value and profitability factors within smaller companies outside the USA.
Despite its active management approach, DFA's disciplined investment process ensures that portfolio turnover remains reasonable at 13%, helping to maintain efficiency and cost-effectiveness.
Moreover, with an expense ratio of just 0.44%, DISV presents an attractive option for investors seeking targeted exposure to international small-cap value stocks without incurring high management fees.
This content was originally published by our partners at ETF Central.