Investment Primer: Global Ex-U.S. Size & Style

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Investing internationally requires a multidimensional approach. Unlike the U.S. market, where “Size & Style” is the primary filter, Global Ex-U.S. investing introduces a third, dominant variable: Geography.

Note: This channel focuses exclusively on funds with broad international mandates (e.g., Developed Markets, Emerging Markets, or All-World Ex-U.S.). Funds targeting specific regions (like Europe) or countries (like Japan) are housed in the separate Region & Country channel.

To build an international portfolio that aligns with your macro assumptions, evaluation must be approached through four distinct lenses: Geography (where you are), Exposure (what you own), Fundamentals (what you are paying), and Risk & Return (how it behaves).

1. Geography Analysis: The Skew Check

While funds in this channel have broad mandates, their size and style methodologies often lead to significant geographic skews. You aren’t picking a country, but you need to know if your “International Value” fund has unintentionally become a “Europe Fund.”

Market Allocation (The Sandbox)

First, define the eligible universe.

  • The Quick Check (Derived): Use the Equity – Market Assignment. This proprietary classification determines if a fund is strictly Developed Ex-U.S., Emerging Markets, or a International/Global blend.
    • Why it matters: A “International Small Cap” fund might surprisingly hold 25% in Emerging Markets, adding significant geopolitical volatility to what you thought was a stable Developed Markets trade.

Regional & Country Tilts (The Skew)

Style biases often result in geographic biases.

  • The Quick Check (Derived): Check the Equity – Region Assignment. Since these funds should have broad mandates, they should rarely trigger a specific Region Assignment (which requires >80% in one region).
    • Red Flag: If an “International Value” fund triggers a “Europe” assignment, the strategy has become so concentrated that it is effectively a regional bet rather than a broad international one.
  • The Deep Dive (Actual): Analyze the Country Over/Underweight relative to both the Benchmark and the Category Average.
    • Benchmark Relative: Reveals the manager’s active bets (e.g., are they intentionally overweighting the UK vs. the MSCI EAFE?).
    • Category Relative: Reveals if the bet is unique. If all International Value funds are overweight the UK, then the fund isn’t an outlier—it’s just following the style.
    • The Goal: Ensure these unintended geographic bets don’t conflict with your macro view.

2. Exposure Analysis: Structural Biases

International markets often have structural sector biases that differ significantly from the U.S. market. “Growth” and “Value” mean different things in different regions.

Sector & Industry Tilts

  • The Quick Check (Derived): Use the Equity – Sector Concentration Rating. A “High” rating is common in international value funds, which often concentrate heavily in Financials and Materials.
  • The Deep Dive (Actual): Analyze GICS Sector Allocation relative to the Benchmark and Category Average.
    • The International Nuance: In many international markets, “Value” is a proxy for Banks and Energy, while “Growth” may not be Tech-heavy but rather Consumer or Industrial focused. Ensure the sector exposures align with your thesis (e.g., if you want international tech, you might need a specific sector fund rather than a broad “Growth” style fund).

Concentration & Overlap

  • The Quick Check (Derived): Check the Equity – Stock Concentration Rating. In smaller markets (like Switzerland or South Korea), the index can be dominated by one or two giants (e.g., Nestle or Samsung). A “High” rating here signals single-stock risk masquerading as a diversified fund.
  • The Deep Dive (Actual): Review Top 10 Holdings. Ensure that a “Developed Markets” fund isn’t just a proxy for Novo Nordisk and ASML.

3. Fundamentals: The Relative Value Test

International stocks often trade at a discount to U.S. peers. The key is distinguishing between a “structural discount” and a “bargain.”

Valuating the “Idea”

  • The Quick Check (Derived): Use Factor Ratings & Tilts (Scale 0-5). Because these ratings are benchmarked against the Global (MSCI ACWI IMI) universe, they allow for a standardized comparison.
    • Example: An “Emerging Markets Value” fund with a Value Tilt Rating of “5” is cheap relative to the entire world, not just cheap relative to other EM funds.
  • The Deep Dive (Actual): Compare Valuation Ratios (P/E, P/B) against both the Category Average and the Benchmark.
    • Context is Key: A fund might look cheap vs. its Benchmark (e.g., MSCI EM) but expensive vs. the Category Average (other EM Value funds). Evaluating both ensures you aren’t overpaying for a “Value” label.

Quality & Financial Health

  • The Quick Check (Derived): Look at the Quality Tilt Rating. International indices can have more “zombie companies” or state-owned enterprises (SOEs) than the U.S. A low Quality rating suggests exposure to inefficient, low-ROE firms.
  • The Deep Dive (Actual): Check ROE and Profit Margins. In Emerging Markets especially, verify that the companies are actually generating shareholder return rather than just growing revenue without profit.

4. Risk & Return: Currency & Volatility

International investing introduces Currency Risk—the risk that the foreign currency weakens against the U.S. Dollar, erasing your equity gains.

Behavioral Checks

  • The Metric: Always measure relative to both the specific Beta Tracker (e.g., MSCI EAFE) and the Category Average.
    • Why Both? Beating the benchmark shows skill (or luck). Beating the category shows the strategy is superior to its direct competitors. Comparing an international fund to the S&P 500 tells you nothing about manager skill.
  • Capture Ratios: Look for funds with favorable Down Capture. In volatile international markets, winning by “losing less” is often the most effective strategy.

Currency Impact

  • The Consideration: While not always a separate data field, check the Strategy field for “Hedged Equity” or look at the fund name for “Currency Hedged.”
    • The Logic: If the U.S. Dollar is strong, unhedged international funds will face a headwind. If the Dollar is weak, unhedged funds get a tailwind. You must decide if you want to take that currency bet.

5. Advanced Application: Multi-Factor Nuance

Finding the “best” international fund often requires solving for the specific weaknesses of the region.

The “And” Query: Solving for Traps

  • The Use Case (Developed Value): Developed Ex-U.S. Value can be full of “Value Traps” (cheap banks with no growth).
    • The Strategy: Filter for Equity – Style Assignment = Value, then sort by Quality Tilt Rating (High to Low).
    • The Goal: Find cheap international companies that actually have decent balance sheets (avoiding the distressed financials).
  • The Use Case (EM Growth): Emerging Markets can be volatile.
    • The Strategy: Filter for Equity – Style Assignment = Growth, then sort by Equity – Stock Concentration Rating (Low to High).
    • The Goal: Find EM growth exposure that isn’t just a concentrated bet on TSMC, Samsung, and Tencent.

6. Popping the Hood: Single Stock Granularity

Aggregate data—like P/E ratios and sector weights—effectively anonymizes the portfolio. The final step is to “De-Anonymize” the fund by looking at the actual companies you are buying.

  • Researching Unfamiliar Names: Unlike the S&P 500, you likely won’t recognize every name in the Top 10 of an International Small Cap fund. Use the Portfolio Visualizer to click through to the company level.
    • The “What do they do?” Check: Is that top holding a stable utility company or a volatile mining operation? Does the business model actually align with your qualitative definition of “Growth” or “Value”?
  • The Governance Check (State-Owned Enterprises): In Emerging Markets, quantitative data won’t tell you who runs the company.
    • The “Who runs it?” Check: Review the holdings to identify State-Owned Enterprises (SOEs). A bank with a low P/E might be cheap because it is run by the government to support national policy rather than shareholder profits.
  • The Structure Check (ADRs vs. Local):
    • The “How do I own it?” Check: Verify if the fund holds the local shares (direct ownership) or ADRs/GDRs (depository receipts). This is critical for understanding regulatory risk, particularly in markets like China.

Beyond the Primer: Institutional-Grade Data & Support

This primer provides a guide for evaluating Global Ex-U.S. strategies, but the ETF Action platform offers far deeper capabilities.

  • Powered by FactSet: Our platform leverages global institutional data, ensuring that your analysis of a Japanese Small Cap fund is as robust as your analysis of the S&P 500.
  • We Are Your Resource: Navigating international markets is complex. The ETF Action team is available to demo how to set up these specific geographic and factor screens to align with your global macro views.