Donald Trump isn't even in the White House yet — but his threats of tariffs are already further pummeling foreign ETFs.
Nearly 99% of actively traded foreign ETFs — including Breakwave Dry Bulk Shipping, iShares MSCI Brazil and iShares MSCI Mexico — are lagging the S&P 500's total return this year, says an Investor's Business Daily analysis of data from Morningstar Direct.
The average foreign ETF is only up 7.9% this year on a total return basis. That's a fraction of the S&P 500's return of nearly 29%.
"A key question facing investors in 2025 is: Can U.S. equity outperformance continue?" said Ross Mayfield, investment strategist at Baird Private Wealth Management.
Sizing Up Foreign Stocks
To be fair, international ETFs had already been lagging the S&P 500 due to a lack of giant tech firms. But the gap has only widened since the election.
The S&P 500 has outperformed the MSCI World ex-US Index in the last 15 years by 512%, Mayfield said. Much of that has to do with the stronger growth and higher valuations of U.S. stocks vs. foreign ones. But the strong U.S. dollar is another piece of the puzzle.
"Since 1988, the U.S. outperforms World ex-US by a median 9% in years when the dollar rises and underperforms by 6% when the dollar weakens," Mayfield said.
President-elect Trump is jawboning for a weaker dollar. But it's unclear how much power he'll have to control it. "If the U.S. economy remains strong, U.S. stocks remain a vacuum for global capital and U.S. interest rates remain high, it's hard to see a path for the dollar to weaken materially, creating a high bar for international to best the U.S."
And that's certainly the case now.
Bringing Up The Rear With Foreign ETFs
In an age where globalization is under assault, an ETF connected with world trade is at risk. As such, Breakwave Dry Bulk Shipping is down nearly 50% this year. The ETF gains when shipping activity is expected to pick up.
And this year's devastation is starting to really sting. It's the worst-performing active foreign ETF this year. The ETF's five-year annualized return is now -18.4%.
Also not surprising is the 23.9% decline by iShares MSCI Mexico. The U.S.' southern neighbor is at the epicenter of Trump's issue with globalization. He's already vowed across-the-board tariffs with Mexico, not to mention mass deportation of Mexican citizens living in the U.S. As such, the ETF's five-year annual return is just 4.4% — a poor return given the risk taken on in exchange.
Trouble In Brazil
Many emerging countries have their own issues on top of what Trump might do. The iShares MSCI Brazil ETF is down nearly 26% this year. That makes it the worst-performing single-country ETF this year. Political upheaval and volatile commodity prices have plagued the nation for years. The iShares MSCI Brazil ETF returned -5.3% annually in the past five years.
On the bright side, the larger and more diversified international ETFs are faring much better. The $119-billion-in-assets iShares Core MSCI EAFE ETF is up 5.7% this year. Not a great return, but it beats a loss.
Broader international ETFs still make sense for diversified investors, says Todd Rosenbluth of TMX Vetta Fi.
"Some of the world's largest and most successful companies are based outside of the U.S.," he said. "Investors wanting to have a well-diversified portfolio should (still) own shares of European and Asian companies."
Worst-Performing Foreign ETFs
This year so far
| Name | Ticker | Market return YTD | Market return one-month | Net assets ($ millions) |
|---|---|---|---|---|
| Breakwave Dry Bulk Shipping | BDRY | -49.3% | -31.18% | 27.9 |
| iShares MSCI Brazil Small-Cap | EWZS | -31.49 | -11.34 | 129.2 |
| iShares MSCI Brazil | EWZ | -25.87 | -8.09 | 3,254.9 |
| iShares MSCI Mexico | EWW | -23.91 | 1.43 | 1,063.7 |
| Franklin FTSE Brazil | FLBR | -23.85 | -7.14 | 152.8 |
| iShares Latin America 40 | ILF | -19.29 | -5.17 | 1,200.0 |
| iShares MSCI South Korea | EWY | -16.27 | -2.37 | 3,489.0 |
| Franklin FTSE South Korea | FLKR | -14.62 | -1.82 | 111,693.3 |
| iShares MSCI Indonesia | EIDO | -10.22 | -3.06 | 285.1 |
| VanEck Vietnam | VNM | -9.13 | 2.98 | 434.1 |
