U.S. stocks have dominated the global market over the last decade, rewarding investors who bought and held after the 2008 financial crisis. However, for those looking to add U.S. equities today, valuations are steep. This premium is especially evident when compared to most international markets.
U.S. stocks are currently the fifth most expensive globally on a forward price-to-earnings (P/E) basis — a ratio that divides a stock’s current price by its expected earnings per share over the next 12 months. With a forward P/E of 23.8, U.S.-only investors are effectively paying $23.80 for every dollar of projected earnings — a hefty premium.
Contrast this with developed-market countries such as Canada, Australia, Japan and France, which trade at much lower forward P/E ratios of 16.3, 18.2, 10.3 and 8.3, respectively. Emerging-market countries are even cheaper on average, with Brazil at 6.5, Argentina at 10.4, China at 10.6 and Mexico at 11.8.
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“In particular, emerging markets are projected to become the major driver of global growth in the next several years,” says Kevin T. Carter, founder and chief investment officer at EMQQ Global. “As these economies expand, we expect their internet and technology sectors to see outsized gains as already witnessed in many western markets.”
Yes, U.S. stocks have outperformed both developed and emerging international markets over the past decade. At present, international stocks are significantly cheaper. If you believe in the principle of systematically buying low and selling high, now may be the time to look beyond the U.S. and consider international diversification.
“Adding international stocks to your portfolio can dampen volatility and improve returns, since the U.S. economy and market may face challenges at different times compared to international regions,” says Scott Klimo, chief investment officer at Saturna Capital. “Mitigating currency risk also plays a role, as the U.S. dollar may strengthen or weaken versus other countries at different times.”
Thanks to a wide variety of mutual funds and exchange-traded funds (ETFs), it’s easier than ever to invest internationally. These funds eliminate the need to convert currencies or buy American depositary receipts (ADRs) and global depositary receipts (GDRs).
Here are seven of the best international stock funds to buy in 2024:
| Fund | Expense ratio |
| Fidelity Zero International Index Fund (ticker: FZILX) | 0% |
| Vanguard Developed Markets Index Fund Admiral Shares (VTMGX) | 0.08% |
| Vanguard Emerging Markets Stock Index Fund Admiral Shares (VEMAX) | 0.14% |
| iShares MSCI BIC ETF (BKF) | 0.70% |
| Schwab International Dividend Equity ETF (SCHY) | 0.14% |
| Emerging Markets Internet ETF (EMQQ) | 0.86% |
| Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR) | 0.65% |
Fidelity Zero International Index Fund (FZILX)
“The ex-U.S. market makes up about 40% to 45% of the world’s market capitalization, so by ignoring international stocks, investors are missing out on roughly half the world’s investing opportunities,” says Kirk Kinder, founder and president of Picket Fence Financial. “Moreover, international stocks are substantially undervalued when you look at metrics like price-to-earnings and price-to-book ratios.”
Investors on Fidelity’s brokerage platform can use FZILX, one of many Fidelity “Zero” funds. True to their name, these mutual funds have a 0% expense ratio. Coupled with no transaction fees, this makes Fidelity Zero funds highly affordable on a pre-tax basis. FZILX tracks over 2,200 holdings represented by the Fidelity Global ex U.S. Index, which encompasses both developed and emerging markets.
Vanguard Developed Markets Index Fund Admiral Shares (VTMGX)
Prefer to split your international allocation up? If this is the case, you may want to separate developed- and emerging-market countries. For the former, consider using a Vanguard mutual fund like VTMGX. This fund tracks the FTSE Developed All Cap ex U.S. Index for a 0.08% expense ratio. However, it does have a $3,000 minimum required investment unless you opt for the ETF version.
VTMGX is highly diversified. Its market-cap-weighted benchmark encompasses over 3,900 small-, mid- and large-cap stocks from more than 20 developed-market countries. Currently, the fund emphasizes equities from Japan, the U.K., Canada, France, Switzerland, Germany and Australia. Thanks to its passive indexing strategy, portfolio turnover for VTMGX is also fairly low at just 2.7%, which improves tax efficiency.
Vanguard Emerging Markets Stock Index Fund Admiral Shares (VEMAX)
The emerging-market counterpart to VTMGX is VEMAX. This fund tracks the FTSE Emerging Markets All Cap China A Inclusion Index for a higher 0.14% expense ratio. While almost twice as much as VTMGX, it reflects the greater cost of indexing emerging-market stocks and is still relatively affordable. As with VTMGX, VEMAX requires a $3,000 initial investment unless you opt for the ETF version.
VEMAX is also highly diversified, with over 5,800 market-cap-weighted holdings spanning 20-plus countries. The ETF is dominated by many countries from the “BRICS” coalition — namely China, India and, to a lesser extent, Brazil and South Africa. Taiwanese equities also receive high emphasis, at around 20% of the portfolio. As with VTMGX, turnover for VEMAX is fairly low, at 4.5%.
iShares MSCI BIC ETF (BKF)
Looking to focus on just the BRICS alliance for a contrarian bet? The specialized international ETF to use in this case is BKF. It tracks the MSCI BIC Index, which holds a portfolio of over 600 Brazilian, Indian and Chinese equities weighted by market capitalization. However, prospective investors should note that BKF charges a high 0.7% expense ratio and has a wider 0.2% 30-day median bid-ask spread.
BKF also only provides exposure to three of the five BRICS nations. Notably, Russia is absent, with equity exposure being highly restricted due to sanctions imposed following the 2022 invasion of Ukraine. South African equity exposure is missing, too, but investors can shore that up by pairing BKF with the iShares MSCI South Africa ETF (EZA), which charges a 0.59% expense ratio.
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Schwab International Dividend Equity ETF (SCHY)
The Schwab U.S. Dividend Equity ETF (SCHD) has attracted $67 billion in assets under management (AUM) due to a combination of above-average tax-efficient yield, competitive total returns and a low 0.06% expense ratio. Its index methodology screens for 10 years of consecutive dividend payments, free cash flow to total debt, return on equity, dividend yield and five-year dividend growth rate.
Today, investors can access SCHD’s strategy for international stocks via SCHY. This ETF tracks the Dow Jones International Dividend 100 Index, which uses a very similar methodology but with a focus on international stocks. SCHY charges a higher but still affordable 0.14% expense ratio and currently pays an above-average 4.3% 30-day SEC yield. The ETF currently has $779 million in AUM.
Emerging Markets Internet ETF (EMQQ)
“EMQQ focuses on some of the most innovative and fastest-growing companies in emerging markets,” Carter says. “In many of these markets, smartphone and e-commerce penetration are at much lower levels than developed markets, providing a multi-decade tailwind of growth.” This ETF’s index committee is currently advised by Burton Malkiel, author of the book, “A Random Walk Down Wall Street.”
EMQQ’s portfolio of 68 holdings is designed to own many of the upstart e-commerce and internet giants from emerging markets, with names like MercadoLibre Inc. (MELI) and Alibaba Group Holding Ltd. (BABA) in the top holdings. “The theme is underpinned by rising digitalization and internet consumption from a wide range of countries spanning China, India, Brazil and even Mexico,” Carter notes.
Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR)
Investing in the Chinese stock market involves navigating two share classes: A-shares, which are traded on mainland Chinese exchanges like the Shanghai and Shenzhen stock exchanges and are primarily accessible to domestic investors, and H-shares, which are traded on the Hong Kong Stock Exchange and are open to international investors. Access to the former can be difficult, but ETFs can help.
The ETF to use for A-shares exposure is ASHR. “Since its launch in November 2013, ASHR has established itself as a key tool for U.S. investors to gain exposure to the mainland China listed A-shares,” notes Arne Noack, regional investment head — Xtrackers, Americas — at DWS Group. “To our knowledge, ASHR is the largest and most liquid ETF outside of China/Hong Kong.” The ETF charges a 0.65% expense ratio.
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Update 12/05/24: This story was previously published at an earlier date and has been updated with new information.
