Some investors aren't waiting around until the U.S. tariff mess is sorted out. They're already buying global ETFs to avoid the circus.
Shares of ETFs connected with dozens of nations, including Poland, Spain, Germany and Brazil, are all surging ahead of the U.S.-focused S&P 500. Many of these countries are expected to benefit indirectly from the Trump administration's on-again-off-again approach to tariffs.
Some of the gains are head-turning. IShares MSCI Poland ETF has returned 32.2% this year. IShares MSCI Spain ETF is up 24.6% and iShares MSCI Germany ETF is up 17.2%, says Morningstar Direct. All these are blowing away the nearly 8% loss, including dividends, by the U.S.-centric S&P 500.
"Many U.S. investors likely have a home bias to their equity allocation given the relative strength of the S&P 500 the last few years," said Todd Rosenbluth of TMX Vetta Fi. "They are missing out on the gains happening overseas where there are strong companies."
Shift In Global Leadership Beyond S&P 500
Some might think the outperformance of several global ETFs vs. the U.S. and S&P 500 is just a recent phenomenon. But recent drops are so severe, years of gains are being wiped out.
The U.S.-focused S&P 500's one-year gain is down to 6.8%, says S&P Global Market Intelligence. That ranks it only as No. 7 among major global indexes. The Madrid Ibex 35 is the top performing index in the past year, rising 22.9%. Germany's DAX index is second with a gain of nearly 20%. Even China's Shanghai Stock Exchange Composite is beating the U.S. with a nearly 9% gain.
Now even the five-year annualized return of the Poland ETF tops the S&P 500's.
This is a major shift. For years, the U.S.' dominance made investing in other countries seem like a waste. The S&P 500 gained nearly 93% in the past five years, second only to Germany's DAX. Meanwhile, many of the U.S. megacaps like Apple and Microsoft have been untouchable.
The earth's markets are shifting, though.
Biggest Global Winners
Poland's economy is seen as gaining from interest from U.S. technology giants in the country.
Just this year, Google parent Alphabet signed a deal to develop AI in the country. Poland is increasingly concerned about the unchecked military moves by its neighbor, Russia. The Trump administration continues to back away from European alliances. Poland is interested in shoring up its cybersecurity.
Poland is already Alphabet's largest engineering hub with more than 2,000 employees, CEO Sundar Pichai said, according to The Associated Press. Microsoft is also investing in Poland. There are risks, though. The Poland ETF's largest sector weighting is in financials at nearly 48%, Rosenbluth says. Consumer discretionary is No. 2 at 12.8%.
Germany, too, is bolstering investments in itself given the shift of the U.S. away from European relations. Rheinmetall, a German defense company with a soaring stock price, is a 4.3% position in iShares MSCI Germany.
Going Broader
Picking the country likely to benefit most from America's retrenchment is tough. Some investors might prefer to target a broader region, like Europe, as a result.
"Investors might prefer a regional European ETF to spread the country risk around," Rosenbluth said. "But it is important to know what countries are represented."
IShares Eurozone ETF is more tilted toward investments in France and Germany, for instance. But iShares Core MSCI Europe has additional exposure to the United Kingdom and Switzerland, he says.
Above all, those, going global helps reduce reliance on U.S. technology giants struggling this year. And that's the point.
"European ETFs are significantly underexposed relative to the S&P 500 to growth-oriented information technology and communications services stocks," Rosenbluth said.
Top Performing Major Foreign ETFs This Year
| Name | Ticker | Year-to-date % return | Annualized 5-year return |
|---|---|---|---|
| iShares MSCI Poland | EPOL | 32.1% | 16.7% |
| iShares MSCI Spain | EWP | 24.5 | 17.2 |
| First Trust STOXX European Select Dividend | FDD | 20.8 | 14.5 |
| iShares MSCI Austria | EWO | 20.1 | 18.1 |
| iShares MSCI Chile | ECH | 17.2 | 8.7 |
| iShares MSCI Germany | EWG | 16.9 | 13.8 |
| Global X DAX Germany | DAX | 16.6 | 15.5 |
| iShares MSCI Brazil Small-Cap | EWZS | 16.4 | 4.1 |
| Cambria Global Value | GVAL | 16.1 | 13.6 |
| iShares MSCI Italy | EWI | 15.4 | 19.4 |
| S&P 500 | SPXT | -7.8 | 15.9 |
