Aggressively bullish on international stocks

Water Cooler Investing
#1

I don’t know about you, but I think that now is the opportunity of a lifetime for value investors.

As I see it, many international stock funds are as undervalued as US stocks were in 1974 and 1982. Japan and emerging markets are especially cheap. Additionally, the Big Mac Index shows nearly every currency to be undervalued against the US dollar. Asian currencies are particularly cheap. When you combine the undervalued stocks with the undervalued currencies, you’ll see that many international stock funds are as undervalued as US stocks were in the 1930s and 1940s.

The investment world has never before been so friendly to small investors. Vanguard Brokerage now offers commission-free trading, and there are more international stock ETFs than ever before. In the past, there were fewer international stock funds and even fewer (or no) international stock ETFs, which meant that you had fewer options and had to pay much higher expense ratios.

The price/book ratios of my favorite international stock ETFs (according to Morningstar) are:

  1. VanEck Vectors Morningstar International Moat ETF (MOTI):
    0.94
  2. WisdomTree Emerging Markets Quality Dividend Growth Fund (DGRE):
    1.33
  3. WisdomTree Emerging Markets SmallCap Dividend Fund (DGS):
    0.78
  4. WisdomTree Japan SmallCap Dividend Fund (DFJ):
    0.70
  5. IQ 500 International ETF (IQIN):
    0.93
  6. SPDR S&P International Small Cap ETF (GWX):
    0.83
  7. Schwab Fundamental International Small Company Index ETF (FNDC):
    0.82

US large cap stock funds are FAR more expensive and still overvalued. Some price/book figures from Morningstar:

  1. Vanguard Total Stock Market Index Fund ETF Shares (VTI):
    2.58
  2. VanEck Vectors Morningstar Wide Moat ETF (MOAT), the US version of MOTI:
    2.59 (vs 0.94 for MOTI)
  3. Vanguard S&P 500 ETF (VOO):
    2.76
  4. WisdomTree U.S. Quality Dividend Growth Fund (DGRW), the US version of DGRE:
    3.59 (vs. 1.33 for DGRE)
  5. Invesco QQQ Trust (QQQ):
    4.79

Most people think that US stocks are safer than international stocks. I disagree when international stocks are 2 to 3 times cheaper.

2 Likes
#2

I agree but I use quant etfs like fyld and ival

#3

Can you go into more fundamental detail or provide preferences from among this list? I’m interested in EM but am really under-educated here.

1 Like
#4

MOTI specializes in stocks with economic moats. It applies the Buffett/Munger philosophy to international stocks. So these are stocks that justify higher valuation multiples, but the fund is selling below book value. You get premium quality at a discount price.

DGRE specializes in dividend growth stocks. These are high quality stocks that justify higher multiples but sell for low multiples. Again, you get premium quality without the premium price.

All the other funds I suggested are selling for less than book value and are well-diversified with respect to companies and industries. DFJ (WisdomTreee Japan small cap dividend ETF) and DGS (emerging markets small cap dividend) are especially cheap at below 80% of book value.