Opportunity is waiting abroad. After a strong performance last year, international markets are a little worse for wear in 2018. Part of that may be mean reversion, and part of it may be pressure from…
Opportunity is waiting abroad.
After a strong performance last year, international markets are a little worse for wear in 2018. Part of that may be mean reversion, and part of it may be pressure from geopolitical issues such as tariffs enacted by the U.S., heightened trade war rhetoric, and some jitters surrounding Brexit and Italian budget woes. But a pullback can be an opportunity to buy good investments cheaper. Here are eight foreign stocks, mutual funds and exchange-traded funds to consider.
Alibaba was a technology stock until this year when it moved into the new consumer discretionary sector, says Scott Kessler, equity analyst at CFRA. He rates BABA a strong buy following a significant price decline. The firm “is the clear leader in (China’s) digital commerce and has invested significantly to expand geographically and into new categories like cloud solutions,” Kessler says. BABA generated 58 percent growth in fiscal year 2018 (ending March) and he says CFRA sees revenue gains of 49 percent in fiscal year 2019 and 38 percent in 2020. BABA could suffer if the Chinese economy and currency weakens and if trade war rhetoric heats up further.
Virtus KAR International Small-Cap Fund Class A (VISAX)
Steve Azoury, owner of Azoury Financial in Troy, Michigan, likes the VISAX mutual fund. A fan of the technology sector, Azoury says VISAX is a top choice for international exposure, citing strong performance. Forty-four percent of the fund is in technology, with 14 percent in industrials. Many investors are underweight small-cap and international funds. Although the fund is down 18 basis points year-to-date, its one-year return is 3.63 percent, and it has a three-year return of 15 percent. It has $916 million in assets under management and fee of 1.65 percent. The fee is on the high side, but it’s reasonable for the space it covers, he says.
British bank Barclays finished restructuring in 2017, and Firdaus Ibrahim, equity analyst at CFRA, rates the bank a strong buy, saying he is encouraged with BCS’s new targets of return on tangible equity of 9 percent in 2019 and 10 percent in 2020, which should drive the re-rating of the stock. Ibrahim forecasts the bank’s revenue to grow 2 percent in 2018, driven by improving net interest margin, loan growth and recovery of market conditions. BCS enjoyed a 10 percent rise in revenue during the second quarter of 2018, supported by growth in its international division. The bank has a strong capital position, too.
Wisdom Tree Emerging Markets High Dividend ETF (DEM)
Emerging markets have been hit hard this year with the stronger dollar. One ETF that’s held up relatively well to its peers is DEM. Eric Watson, senior partner, managing director and portfolio manager at Snowden Lane, says he likes that this is a dividend-paying ETF, and has a “decent” dividend yield of 4 percent. Watson says DEM is a weighted index of emerging-market stocks ranked in the top 30 percent by dividend yield. “It’s a big liquid fund,” Watson says. The fund has a mid-cap tilt. It has $1.86 billion in AUM and an expense ratio of 63 basis points. It is down 3.8 percent year-to-date.
Coca-Cola European Partners is Coca-Cola’s strategic bottling partner in Western Europe and the third-largest independent bottler globally. Jia Man Neoh, equity analyst at CFRA, says despite lackluster growth prospects of the soft-drink industry in Western Europe, CCE has the potential to outgrow the market through product innovation and capture rising demand for healthier beverage options. CCE saw weakness in the first half of 2018 because of poor weather and a customer dispute, but weather should normalize and the dispute should be resolved. Coke’s attempts to reposition its products offerings and launch new products should drive low single-digit underlying revenue growth over 2018, he says.
First Trust Dorsey Wright International Focus 5 ETF (IFV)
Watson said the IFV is an “ETF of ETFs” as First Trust takes a basket of international ETFs and measures them against each other, then chooses the top five. If one of the ETFs drops below a certain rules-based level, it gets replaced at rebalancing. Its current ETF lineup includes ETFs representing Germany, Switzerland and a combined China-India ETF. It’s heavily weighted toward more developed international ETFs than emerging markets. “This is sort of plug and play,” Watson says, meaning he lets the ETF decide how to manage sector rotation. It has an expense ratio of 1.06 percent and $725 million in AUM.
Total is an integrated oil and gas company, and is one of the largest publicly traded oil companies globally. Neoh has a strong buy recommendation on the stock, noting the oil company’s sales in the first half of 2018 were up 26 percent over the previous timeframe, supported by higher energy prices and output. Forecasts for higher oil prices should underpin the company, and Total upgraded its 2018 production growth guidance to more than 7 percent, based on new field start-ups and by integrating assets from its purchase of Maersk Oil.
On the industrial side, Ibrahim has a strong buy on Siemens, a diversified industrial conglomerate covering energy, industry and health care. The firm’s industrial business profit margin improved slightly in the third quarter of fiscal year 2018, to 10.7 percent, based on strong profitability improvement at its digital factor unit, and improvement in most of its industrial businesses. As industrial digitization expands, Ibrahim says Siemens, which is traded over the counter, will reduce costs and increase productivity. “Given (Siemens) history of guiding conservatively, and its track-record in delivering on previous strategy ahead of time, we believe the company can outperform its targets,” Ibrahim says.