Is now the time to add an active foreign equities allocation? Investors have likely already considered a case to diversify domestic-heavy portfolios with international equities. An active slice, in particular, however, could present a different and appealing spin on the space. With U.S. equities expensive — and crucially, top-heavy — it may be worth considering a strategy like the T. Rowe Price International Equity ETF (TOUS).
Why look abroad? The S&P 500 remains significantly top-heavy with so-called “magnificent seven” firms, primarily in tech, driving the predominance of the growth. Should tech particularly lose investor confidence in one given area, it would be possible to see a chain reaction in the space that results in investors abandoning such expensive names. Outside of that concentration risk, U.S. equities also face the lagging impact of rate hikes finally moving through credit markets. There are also concerns about consumer spending durability.
See more: “Active ETFs Outperformed Passive Funds in 1H 2023”
Those factors may boost the case for adding an active foreign equities strategy. While the U.S. economy is still metabolizing rate hikes, many foreign markets have already done the hard work of taming inflation. An active strategy may intrigue, given how its specialized managers can identify the strongest opportunities across several economies.
