While U.S. equities as represented by the S&P 500 index have experienced significant growth over the past several years as compared to international equities as represented by the MSCI EAFE index, investors may find themselves uncomfortable with overweight's to sectors that have become historically expensive.
Introducing international exposure may help diversify risk by increasing exposure to sectors that may not be as overvalued. As an example, the MSCI EAFE Index exhibits higher weight to sectors that are relatively inexpensive such as Financials, and smaller weights to expensive sectors like Technology.
Adding international exposure can reduce overweights to overvalued sectors
S&P 500 Sector Allocation
MSCI EAFE Sector Allocation
Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index.
HFXI can be a way to take a currency neutral approach to market-cap weighted international equity, providing the sector benefits mentioned above while exhibiting lower volatility through the reduction of exposure to currency fluctuations.
Source for charts: Morningstar as of 9/30/24.
Momingstar data shown for the period 08/01/2015 - 09/30/2024. Past performance is no guarantee of future results. It is not possible to invest directly in an index.
Beta is a measure of historical volatility relative to an appropriate index based on its investment objective. A beta greater than 1.00 indicates volatility greater than the benchmarks.
Up Capture Ratio is the statistical measure of an investment manager's overall performance in up markets.
Down Capture Ratio is a statistical measure of an investment manager's overall performance in down-markets.
Sharpe ratio compares the return of an investment with its risk. It's a mathematical expression of the insight that excess returns over a period of time may signify more volatility and risk, rather than investing skill.
Consider NYLI FTSE International Equity Currency Neutral ETF (HFXI)
Passive international exposure
Employs a truly passive, simpler approach to international equity investing for broad developed market exposure.
Currency neutral
A 50% currency hedge mitigates the volatility associated with fully hedged or unhedged strategies and eliminates the need to make a currency bet.
A core international holding
Use as a low-cost, tax-efficient alternative to actively managed international equity strategies.
Standard deviation measures how widely dispersed a fund's returns have been over a specified period of time. A high standard deviation indicates that the range is wide, implying greater potential for volatility.
About Risk
The Fund will invest in securities denominated in currencies other than U.S. dollars (foreign currencies) and much of the income received by the Fund will be in foreign currencies, but the Underlying Index and the Fund’s NAV will be calculated in U.S. dollars. Furthermore the Fund may convert cash in U.S. dollars to foreign currencies to purchase securities. Both the Fund’s ability to track the Underlying Index and Fund returns in general may be adversely impacted by changes in currency exchange rates, which can occur quickly and without warning.
The Fund uses various strategies to attempt to reduce the impact of changes in the value of a foreign currency against the U.S. dollar. These strategies may not be successful.
Derivatives are investments whose value depends on (or is derived from) the value of an underlying instrument, such as a security, asset, reference rate or index. Derivatives may be difficult to sell, unwind or value. The use of a derivative may be more volatile than the underlying direct investment.
The Fund invests in the securities of non-U.S. issuers, which securities involve risks beyond those associated with investments in U.S. securities. The performance of the Underlying Index and the Fund may deviate from that of the markets the Underlying Index seeks to track due to changes that are reflected in the sector more quickly than the quarterly rebalancing process can track. Securities in the Underlying Index or in the Fund’s portfolio may also underperform in comparison to the general securities markets.
The strategy used by the Advisor to match the performance of the Underlying Index may fail to produce the intended results. Mid capitalization companies are generally less established and their stocks may be more volatile and less liquid than the securities of larger companies.