The S&P is Up 16% This Year. These International ETFs are Up More Than 70%

It’s been a turbulent past couple of weeks, but the S&P 500 is poised to finish the year with some historically decent gains intact. At the time of this writing, the S&P is up just north of 14%. It’s a solid return, but less so when you compare the last two years. When you zoom out to the global picture, the S&P 500’s gains have been quite subpar, to say the least.

Of course, when you compare the U.S. stock market to Spain, the iShares MSCI Spain ETF (NYSEARCA:EWP) is up a mouth-watering 70% year to date, or other nations that have dwarved the S&P’s gains, it seems like it’s time to go international, preferably opting for lower-valuation markets that might be able to score a better return over the next decade.

The big gains don’t stop at Spain’s market, either. In fact, a number of nations have seen their indices rise more than 50-60%. The iShares MSCI Korea ETF (NYSEARCA:EWY), which tracks the South Korean equity market, is up more than 73% year to date. Meanwhile, the iShares MSCI South Africa ETF (NYSEARCA:EZA) is up close to 58% year to date.

Is it too late to go after red-hot international ETFs after a year of incredible gains?

Undoubtedly, you can’t turn back time and dump the S&P 500 ETFs for the international ones, but, for domestically overexposed investors, the big question is whether or not there’s still value in buying the international ETFs on strength in an effort to improve one’s geographic diversification.

Though emerging markets could lead to bigger gains, I do think there are developed markets, with lower multiples, that might be a better fit for investors who are actively seeking to limit beta. Of course, when it comes to the emerging market ETFs, one faces an entirely different set of risks and correlations than the ones the U.S. stock market faces. Undoubtedly, the U.S. market is getting really heavy on the tech exposure, making it most at risk should some sort of AI bubble burst or a tech-driven bear market come to be at some point in the future.

At the same time, perhaps tech and AI could pick up traction again, causing the S&P 500 to outdo its less-tech-heavy international counterparts. It’s really hard to tell. Either way, I’d say that chasing returns is a bad idea and that investors shouldn’t seek to invest in Spain, South Korea, or South Africa just because the last year of gains has been so much better than what we’ve come to expect from the S&P.

Is a bit of international diversification a good idea?

Most definitely. I find valuations in South Korea and elsewhere to still be quite attractive. Additionally, South Korea has a good amount of chip exposure, making the region compelling for investors still seeking a bit of that AI growth jolt.

Just don’t expect another S&P-crushing year. Perhaps much of the gains are front-loaded, leaving less impressive performance in the cards for the hotter international stock markets.

Personally, I think there’s no shame in sticking with the S&P 500. I’m more inclined to think it’s the way to go, given that the Mag Seven are among the best companies in the world. The big question is whether valuations will limit future appreciation in the titans.