Rising interest rates, supply chain disruptions, and political risks will make diversification a top concern in 2022. Given the S&P 500’s significant rally over the past few years, many portfolios are overweight in U.S. growth stocks. However, international investments tend to outperform during periods of higher inflation and higher bond yields.
When seeking international diversification, many investors turn toward passive market-cap-weighted funds. Facebook, Google, and other large U.S. companies have outperformed smaller companies in the U.S., but most foreign markets lack large growth stocks. As a result, investors might be better off taking an active approach when looking abroad.
Let’s take a look at some international active ETFs to diversify your portfolio and generate more alpha.
See our Active ETFs Channel to learn more about this investment vehicle and its suitability for your portfolio.
SPDR SSGA Global Allocation ETF (GAL)
The SPDR SSGA Global Allocation ETF (GAL) seeks to provide capital appreciation by investing in a diverse mix of ETFs. At least 30% of its assets come from securities of issuers economically tied to countries other than the U.S. Meanwhile, 60% of its portfolio is allocated to equities securities, varying based on the manager’s tactical decisions.
The fund’s five largest holdings include:
- SPDR Portfolio Developed World ex-US ETF (18.46%)
- SPDR S&P 500 ETF Trust (15.54%)
- SPDR Portfolio Europe ETF (5.99%)
- SPDR Portfolio S&P 600 Small-Cap ETF (5.32%)
- SPDR Portfolio Long-term Treasury ETF (5.08%)
Investors looking for an easy way to add a portfolio with built-in diversification, along with tactical asset allocation, might want to consider the active ETF. In addition to its modest 0.35% expense ratio, the fund offers a distribution yield of nearly 2% that might be attractive to retirement investors looking to supplement their income.
BNY Mellon Concentrated International ETF (BKCI)
The BNY Mellon Concentrated International ETF (BKCI) is an active ETF that uses bottom-up fundamental research to build a concentrated portfolio of high conviction investment ideas. Launched on December 6, 2021, the fund has already drawn in over $10 million in assets under management with a modest 0.80% expense ratio.
The fund’s portfolio includes 25 to 30 individual, non-U.S. stocks of any size, with up to 20% of its portfolio in high-growth emerging markets.
The five largest holdings include:
- Keyence Corporation (5.10%)
- Hoya Corporation (3.73%)
- SGS SA (3.73%)
- Novo Nordisk (3.72%)
- Daikin Industries Ltd. (3.72%)
Investors might want to consider the fund as an alternative to passive market-cap-weighted funds. With its focus on fundamental analysis, investors could benefit from more significant upside potential, although funds that invest in smaller companies might be inherently riskier. The fund also has a minimal track record since it just launched.
Take a look at our recently launched Model Portfolios to see how you can rebalance your portfolio.
WisdomTree Emerging Markets Local Debt Fund (ELD)
The WisdomTree Emerging Markets Local Debt Fund (ELD) seeks a combination of income and capital appreciation by investing in local debt denominated in the currencies of emerging market countries. With its active management structure, the fund managers focus on continuous risk management and seek high-income potential and diversification.
The fund’s top exposure includes:
- Indonesia (11.38%)
- Russia (11.09%)
- Brazil (7.37%)
- Colombia (7.28%)
- China (7.25%)
The fund’s portfolio consists of about 200 emerging market debt securities with an effective duration of 4.83 years and a distribution yield of 4.82%. While bond prices (domestic and international) suffered in 2021, the fund generated positive three-year and five-year returns and could offer investors a means to diversify their income portfolio.
BNY Mellon Sustainable International Equity ETF (BKIS)
The BNY Mellon Sustainable International Equity ETF BKIS is another active fund from BNY Mellon. In addition to capital appreciation, the fund invests at least 80% of its assets in the stocks of foreign companies that demonstrate sustainable business practices. These ESG criteria may include things like environmental footprints or labor standards.
Since launching on December 14, 2021, the fund attracted $10 million in assets under management and built a portfolio of about 40 stocks.
The five largest holdings include:
- Taiwan Dollar (4.70%)
- Taiwan Semiconductor (4.52%)
- L’Oreal (3.81%)
- Roche Holdings (3.71%)
- GlaxoSmithKline (3.51%)
The Bottom Line
The long bull market in the U.S. could be coming to an end in 2022. With rising interest rates, supply chain disruptions, and political risks abound, investors might want to diversify their portfolios, particularly if they’re overweight in U.S. growth stocks. The international active ETFs we’ve covered provide a unique opportunity to add alpha to your portfolio.
Don’t forget to explore our Dividend Guide where you can access all the relevant content and tools available on Dividend.com based on your unique requirements.
