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The International Monetary Fund (IMF) has upgraded its global growth forecast for 2024. It now anticipates a 3.1% expansion, marking a 0.2 percentage point increase from its previous projection in October. There is an expected 3.2% growth in 2025. Factors contributing to this revised outlook include resilience in the U.S. economy, Chinese fiscal stimulus, and strong performance from large emerging market economies.
Despite the positive revisions, the global economy faces new risks, especially from commodity price fluctuations and supply chain disruptions due to instability in the Middle East. However, global inflation has declined faster than expected, reducing the likelihood of a hard landing, an abrupt economic slowdown following a period of growth.
Euro zone Escapes Recession Narrowly
Meanwhile, the euro zone economy showed signs of stabilization in the fourth quarter of 2023, narrowly avoiding a shallow recession that had been predicted by economists. This followed a minor decline of 0.1% in GDP during the third quarter. The seasonally adjusted GDP remained steady when compared with the previous quarter and exhibited a marginal expansion of 0.1% over the previous year. Overall, the euro area's economy grew by 0.5% in 2023, according to preliminary estimates.
Performance of Key Euro Zone Economies
Germany, the largest economy in the bloc, experienced a 0.3% contraction in the last quarter of the year. However, it narrowly avoided a technical recession due to an upward revision of its third-quarter figures, which showed the economy had stagnated rather than contracted. In contrast, the French economy remained stable during this period, and Spain exceeded expectations with a growth of 0.6%.
However, the European Commission’s euro zone sentiment indicator revealed a decline in consumer confidence. However, there was a slightly more optimistic outlook for businesses in the services and industrial sectors. This mixed sentiment reflects the ongoing phase of prolonged weakness in the euro zone economy, primarily driven by Germany, while southern European countries are leading in growth.
IMF’s Growth Projections for Major Economies
The IMF forecasts growth rates for 2024 at 2.1% in the U.S., 0.9% in both the euro zone and Japan, and 0.6% in the United Kingdom. These projections are underpinned by the resilience observed in the global economy during the latter half of the previous year, which is expected to continue into 2024.
ETFs in Focus
Against this mixed backdrop, it is wise to bet on quality ETFs if you are considering international ETF investing. Below we highlight a few of them that have exhibited decent momentum lately.
Invesco S&P International Developed High Quality ETF (IDHQ - Free Report) – Up 2.6% Last Week
The underlying S&P Quality Developed ex US LargeMidCap Index tracks the performance of stocks in the S&P Developed Ex-US LargeMidCap Index that have the highest quality score, which is calculated based on three fundamental measures, return on equity, accruals ratio and financial leverage ratio. The fund charges 29 bps in fees and yields 2.47% annually.
First Trust Dorsey Wright International Focus 5 ETF (IFV - Free Report) – Up 2.1% Last Week
The underlying Dorsey Wright International Focus Five Index is designed to provide targeted exposure to the five First Trust international ETFs that offer the greatest potential to outperform the other ETFs in the selection universe. The expense ratio of the fund is 1.06%.
Xtrackers FTSE Developed ex US Multifactor ETF (DEEF - Free Report) – Up 1.5% Last Week
The underlying FTSE Developed ex US Comprehensive Factor Index is designed to capture exposure to international developed market equities using five factors - Quality, Value, Momentum, Low Volatility and Size. The fund charges 24 bps in fees.
Schwab International Equity ETF (SCHF - Free Report) – Up 1.4% Last Week
The underlying FTSE Developed ex-US Index is comprised of large and mid-capitalization companies in developed countries outside the United States. The index defines the large and mid-capitalization universe as approximately the top 90% of the eligible universe. The fund charges 6 bps in fees.
Avantis International Large Cap Value ETF (AVIV - Free Report) – Up 0.9% Last Week
The actively-managed Avantis International Large Cap Value ETF invests in a broad set of non-U.S. developed large-cap companies and is designed to increase expected returns by focusing on firms believed to be trading at low valuations with higher profitability ratios. The fund charges 25 bps in fees and yields 3.70% annually.
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Should You Play International ETFs Right Now?
The International Monetary Fund (IMF) has upgraded its global growth forecast for 2024. It now anticipates a 3.1% expansion, marking a 0.2 percentage point increase from its previous projection in October. There is an expected 3.2% growth in 2025. Factors contributing to this revised outlook include resilience in the U.S. economy, Chinese fiscal stimulus, and strong performance from large emerging market economies.
Despite the positive revisions, the global economy faces new risks, especially from commodity price fluctuations and supply chain disruptions due to instability in the Middle East. However, global inflation has declined faster than expected, reducing the likelihood of a hard landing, an abrupt economic slowdown following a period of growth.
Euro zone Escapes Recession Narrowly
Meanwhile, the euro zone economy showed signs of stabilization in the fourth quarter of 2023, narrowly avoiding a shallow recession that had been predicted by economists. This followed a minor decline of 0.1% in GDP during the third quarter. The seasonally adjusted GDP remained steady when compared with the previous quarter and exhibited a marginal expansion of 0.1% over the previous year. Overall, the euro area's economy grew by 0.5% in 2023, according to preliminary estimates.
Performance of Key Euro Zone Economies
Germany, the largest economy in the bloc, experienced a 0.3% contraction in the last quarter of the year. However, it narrowly avoided a technical recession due to an upward revision of its third-quarter figures, which showed the economy had stagnated rather than contracted. In contrast, the French economy remained stable during this period, and Spain exceeded expectations with a growth of 0.6%.
However, the European Commission’s euro zone sentiment indicator revealed a decline in consumer confidence. However, there was a slightly more optimistic outlook for businesses in the services and industrial sectors. This mixed sentiment reflects the ongoing phase of prolonged weakness in the euro zone economy, primarily driven by Germany, while southern European countries are leading in growth.
IMF’s Growth Projections for Major Economies
The IMF forecasts growth rates for 2024 at 2.1% in the U.S., 0.9% in both the euro zone and Japan, and 0.6% in the United Kingdom. These projections are underpinned by the resilience observed in the global economy during the latter half of the previous year, which is expected to continue into 2024.
ETFs in Focus
Against this mixed backdrop, it is wise to bet on quality ETFs if you are considering international ETF investing. Below we highlight a few of them that have exhibited decent momentum lately.
Invesco S&P International Developed High Quality ETF (IDHQ - Free Report) – Up 2.6% Last Week
The underlying S&P Quality Developed ex US LargeMidCap Index tracks the performance of stocks in the S&P Developed Ex-US LargeMidCap Index that have the highest quality score, which is calculated based on three fundamental measures, return on equity, accruals ratio and financial leverage ratio. The fund charges 29 bps in fees and yields 2.47% annually.
First Trust Dorsey Wright International Focus 5 ETF (IFV - Free Report) – Up 2.1% Last Week
The underlying Dorsey Wright International Focus Five Index is designed to provide targeted exposure to the five First Trust international ETFs that offer the greatest potential to outperform the other ETFs in the selection universe. The expense ratio of the fund is 1.06%.
Xtrackers FTSE Developed ex US Multifactor ETF (DEEF - Free Report) – Up 1.5% Last Week
The underlying FTSE Developed ex US Comprehensive Factor Index is designed to capture exposure to international developed market equities using five factors - Quality, Value, Momentum, Low Volatility and Size. The fund charges 24 bps in fees.
Schwab International Equity ETF (SCHF - Free Report) – Up 1.4% Last Week
The underlying FTSE Developed ex-US Index is comprised of large and mid-capitalization companies in developed countries outside the United States. The index defines the large and mid-capitalization universe as approximately the top 90% of the eligible universe. The fund charges 6 bps in fees.
Avantis International Large Cap Value ETF (AVIV - Free Report) – Up 0.9% Last Week
The actively-managed Avantis International Large Cap Value ETF invests in a broad set of non-U.S. developed large-cap companies and is designed to increase expected returns by focusing on firms believed to be trading at low valuations with higher profitability ratios. The fund charges 25 bps in fees and yields 3.70% annually.