International Stocks On The Cheap In This ETF

Investors are flocking to international equity exchange-traded funds in droves and those investors like their ex-US ETFs with low fees. Both scenarios are good news for the iShares Core MSCI Total International Stock ETF IXUS.

IXUS debuted in October 2012 as part of the iShares core suite of low-cost ETFs, a tradition the fund honors with an annual expense ratio of just 0.11 percent, or $11 on a $10,000 investment. That makes IXUS one of the more attractively priced international index funds that contains exposure to both developed and emerging markets stocks.

“IXUS is a solid fund for broad exposure to stocks listed in foreign developed and emerging markets,” said Morningstar in a recent note. “Its well-diversified, market-cap-weighted portfolio and rock-bottom annual fee set it apart from its foreign large-blend Morningstar Category peers, and support a Morningstar Analyst Rating upgrade to Gold from Silver.”

Broad Exposure

IXUS, which tracks the MSCI ACWI ex USA IMI Index, is a compelling idea for investors looking for exposure to a broad swath of international stocks under the roof of one fund. The ETF holds more than 3,400 stocks with over 20 countries represented within the fund.

While three of the top 10 geographic weights in IXUS are emerging markets, this fund leans heavily toward developed markets. Additionally, despite its emerging markets exposure, IXUS isn't all that volatile. The ETF has a three-year standard deviation of 12.35 percent, which is only basis points higher than the same metric on the MSCI EAFE Index. Investors, however, should note that IXUS doesn't hedge currency risk.

“Like most of its peers, the fund does not hedge its currency risk, which can hurt performance when the U.S. dollar strengthens relative to foreign currency and is a source of volatility,” said Morningstar. “Over the trailing 10 years, nearly one fifth of the fund's total volatility came from currency fluctuations. The fund currently has significant exposure to the euro, Japanese yen, and British pound.”

Nice Valuations

While IXUS offers a value proposition for thrifty investors based on its low fee, like other international funds, its holdings are attractive on valuation. The ETF's price-to-earnings ratio is about 14.7, well below the 21 on the S&P 500. Emerging markets could fuel IXUS or weigh on the fund as 2018 moves along.

“The fund's above-average exposure to stocks listed in emerging markets has hurt performance in recent years. The MSCI EAFE Index, which tracks foreign developed markets, has outperformed the MSCI Emerging Markets Index by 4.4 percent annually over the trailing five-year period through September 2017,” according to Morningstar.

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