The U.S. may be the economic envy of the world today, but international exposure still has a place in every portfolio. By diversifying across borders, you can protect your assets against a U.S. decline and even out your returns over time. You might also find better values—especially with U.S. stocks trading near all-time highs.
While most investors prefer passive index funds when investing in large-cap stock, some actively managed funds may be better suited for international markets. Active managers adjust allocations based on economic cycles or geopolitical risks while others seek out better values around the world, yielding more opportunities to generate alpha.
In this article, we’ll cover what makes active international funds appealing and discuss new active funds in the space, like BlackRock’s new country rotation ETF.
Why Active International Funds?
The U.S. stock market may be the envy of the world over the past decade, but stock performance is cyclical around the world if you zoom out. For example, in the 2000s, U.S. stocks underperformed both emerging and developed markets following the internet crash in the early 2000s and the global financial crisis in 2008.
The value of international investing becomes even clearer if you look beyond passive indexes. After all, many international indexes weighted by market capitalization hold a concentrated portfolio of companies across just a handful of countries—and this eliminates many of the benefits of diversification.
Active managers can employ more targeted global strategies to generate alpha. For instance,
Morningstar’s Active vs. Passive Barometer also shows that active managers perform better in international markets than domestic markets over the long run. Between 26% and 35% of international active funds outperformed their passive counterparts over the past 15 years compared to just 3.5% to 9% of large-cap funds focused on U.S. equities.
BlackRock’s Country Rotation ETF
BlackRock, the world’s largest asset manager, recently launched the iShares International Country Rotation Active ETF (CORO), which leverages quantitative models to express changing views on international developed and emerging market countries. These same models power about $170 billion in assets under management.
“International equities are a crucial diversifier for U.S. investors,” says Michele Freed, Head of Research for U.S. Model Portfolio Solutions. “CORO’s rotation approach offers model builders a flexible tool to seek alpha by dynamically shifting towards stronger markets while maintaining balanced exposure to international markets with a single ticker.”
Unlike a conventional passive index fund, CORO maintains exposure to specific countries via iShares’ country ETFs. The rotation strategy weights countries expected to see favorable economic trends more highly, potentially generating higher returns than funds investing broadly across all countries or focusing on market capitalization alone.
Currently, the fund’s largest exposure consists of:
- iShares MSCI Japan ETF (EWJ) – 13.65%
- iShares MSCI United Kingdom ETF (EWU) – 8.06%
- iShares MSCI China ETF (MCHI) – 7.92%
- iShares MSCI Canada ETF (EWC) – 7.75%
The gross expense ratio clocks in at a lofty 1.08%, but BlackRock is waiving a portion of its management fees until June 2026, resulting in a 0.55% net expense ratio.
Alternative International ETFs
Other international ETFs focus on value opportunities, dividend yields or other strategic corners of the market without the constraint of looking in the U.S. only.
Active International ETFs
These funds are sorted by their YTD total return, which ranges from 8.2% to 11.3%. They have AUM between $1.6B and $7.2B, with expenses running between 0.18% and 0.43%. They are currently yielding between 1.7% and 3.4%.
| Name | Ticker | Type | Actively Managed? | AUM | YTD Total Ret (%) | Yield | Expense |
|---|---|---|---|---|---|---|---|
| Avantis International Small Cap Value ETF | AVDV | ETF | Yes | $5.63B | 11.3% | 3.4% | 0.35% |
| Dimensional International Value ETF | DFIV | ETF | Yes | $7.15B | 10.1% | 2.5% | 0.27% |
| Dimensional International Small Cap Value ETF | DISV | ETF | Yes | $1.66B | 9.2% | 1.7% | 0.43% |
| Dimensional International Core Equity Market ETF | DFAI | ETF | Yes | $5.65B | 8.2% | 1.8% | 0.18% |
The Bottom Line
Most investors appreciate the value of international diversification, but few consider the role of active management in boosting these benefits. Rather than investing in the world’s largest companies, active managers can navigate complex geopolitical trends and find undervalued companies around the world poised to outperform.
