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Vanguard FTSE Developed Markets ETF has underperformed the S&P 500 but has shown modest alpha since mid-February. VEA has a compelling valuation and some foreign-developed stock markets are reaching all-time highs. VEA's low PEG ratio, high dividend yield, diversified allocation across sectors, and improved chart are positive factors.
ICOW: Attractive Fundamentals, Average Performance
The S&P 500 has rallied 17% in just over two months, and US stock valuations are "stretched." The rest of the world is lagging the US in terms of inflationary trends, central bank policy and valuations. Investors may start looking for a catch-up play outside the US, considering ETFs like Vanguard FTSE Developed Markets ETF and Vanguard Total International Stock Index Fund ETF.
We juxtapose VEA against its largest developed market peer-IEFA. We pick out a couple of themes that could weigh on VEA's performance. We close with some thoughts on the valuations and the technicals.
Vanguard FTSE Developed Markets ETF offers diversification in developed foreign markets as an alternative to U.S.-centric investments. VEA has trailed the S&P 500 due to limited exposure to high-growth sectors, but may benefit from a credit event. VEA provides diversification and attractive valuation compared to U.S. stocks, but caution is advised due to momentum weakness and Federal Reserve policy.
At the present time, I am maintaining a cautious outlook, with my portfolio split almost evenly between cash, bonds, and equities. With respect to the equity portion, I continue to be diversified between U.S. and international stocks.
Foreign developed equities have outperformed most areas of the global market this year. With solid earnings trends despite macro risks and still-attractive valuations, I'm upgrading VEA to a buy.
U.S. REITs Rebound, But Bearish Trend Still Weighs On Sector.
Vanguard FTSE Developed Markets ETF owns a portfolio of large-cap stocks in developed markets outside of the U.S. The fund's price may continue to be depressed in the near term due to the Federal Reserve's policy.
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