This discussion underscores the strategic advantages of incorporating international equities into investment portfolios, particularly through the iShares Core MSCI Total International Stock ETF (IXUS). This ETF stands out for its extensive global market reach, encompassing more than 4,000 different company holdings, all while maintaining a remarkably low expense ratio of 0.07%. Such a structure not only facilitates broad diversification across various international markets but also ensures cost-efficiency for investors. The fund's performance has been notably robust, bolstered by periods of U.S. dollar depreciation, showcasing its potential to act as a counter-balance to domestic market fluctuations and enhance overall portfolio resilience.
International equities, represented effectively by IXUS, have historically served as a critical tool for diversification. Their inclusion helps mitigate risks associated with over-reliance on any single national economy or market. This year, in particular, has seen international markets demonstrate their value, with IXUS delivering an impressive 31% return. Over a longer horizon, its 10-year annualized return of 8.5% further solidifies its position as a compelling investment vehicle for long-term growth and stability.
A key factor contributing to IXUS's attractive profile is its current valuation. With a price-to-earnings (P/E) ratio of 18.4 and a price-to-book (P/B) ratio of 2.1, international stocks are generally considered fairly valued. These metrics suggest that the market is not overpricing these assets, offering potential for future appreciation as global economies continue to evolve. This contrasts with some domestic markets, which may exhibit higher valuations, indicating less room for growth.
Moreover, the ongoing trend of U.S. dollar weakness plays directly into the hands of international equity funds like IXUS. A weaker dollar makes foreign assets more valuable when converted back into U.S. currency, directly boosting the returns for American investors in international markets. This currency effect, combined with favorable valuations and sustained positive market momentum, paints a promising picture for IXUS and similar international investment strategies.
Considering these factors, shifting investment focus from predominantly U.S.-centric portfolios, such as those heavily weighted in the S&P 500, towards international options like IXUS could be a strategic move. This rotation offers not just enhanced diversification but also the opportunity to capitalize on potential multiple expansion in global markets. For investors aiming to optimize their portfolios for long-term growth while managing risk, a thoughtful allocation to international equities through a fund like IXUS warrants serious consideration.