MW Here's a smart way to beat the U.S. stock market - and 10 ETFs to get you there
By Mark Hulbert
International stocks are likely to keep outperforming the S&P 500
Non-U.S. stocks have returned twice as much as the S&P 500 so far this year.
International stocks have significantly outperformed the S&P 500 so far this year - and they're good bets to continue their winning ways.
Non-U.S. stocks produced a year-to-date 9.6% return through April 22, according to the Vanguard Total International Stock Index Fund ETF VXUS, slightly more than twice the S&P 500's SPX 4.7% total return.
Many on Wall Street are surprised, since non-U.S. economies seemingly are more at risk from a protracted Iran war and high oil prices. And though the U.S. has been the best-performing market since that war broke out, it has not been enough to put much more than a dent in non-U.S. stocks' sizeable year-to-date lead.
One retort I've received when recently presenting this performance data is that the non-U.S. stocks' lead must trace to a declining U.S. dollar, which would boost the dollar-denominated return of foreign stocks. But that can't be the reason since the dollar now is trading about where it was at the start of the year. The U.S. dollar index DXY currently is 0.3% higher than it was on Dec. 31.
Yet another comeback I get is that, if the data is accurate, U.S. stocks must represent great value right now. None other than Pershing Square's Bill Ackman is making this argument, declaring that many U.S. stocks are "stupidly cheap."
Read: Cheap stock options suggest a big postearnings swing next week for these tech titans
I'm not so sure. As judged by the Cyclically Adjusted Price/Earnings ratio, or CAPE, which has one of the best forecasting records of any valuation indicator, U.S. equities are among the most overvalued in the world. The CAPE is calculated by dividing current price by average inflation-adjusted earnings per share over the trailing 10 years.
U.S. equities' relative overvaluation is illustrated in the chart below, which plots the CAPE for two dozen leading economies around the world. As you can see, as of March 31, only one country - Taiwan - had a CAPE ratio higher than that of the U.S.
The relative attractiveness of non-U.S. equities is showing up among the stocks and funds favored by the investment newsletters my performance auditing firm monitors. Of the 32 mutual funds and ETFs that currently are recommended for purchase by any of those newsletters, 10 focus exclusively on non-U.S. stocks. That's a higher proportion than at any other time in recent memory.
Read: Market chaos gives money managers a chance to beat index funds - just like they're supposed to do
These 10 funds are listed here in alphabetical order:
Ticker Fund/ETF TIVFX American Beacon IMC International Small Cap Fund IDV iShares International Select Dividend ETF EFV iShares MSCI EAFE Value ETF EEM iShares MSCI Emerging Markets ETF EWY iShares MSCI South Korea ETF SSAIX State Street International Stock Selection Fund SPEU State Street SPDR Portfolio Europe ETF TRIGX T. Rowe Price International Value Equity Fund VYMI Vanguard International High Div Yield Index Fund ETF DXJ WisdomTree Japan Hedged Equity Fund
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com
More: The 'blue sky' scenario that could take the S&P 500 to 8,000 by year's end, according to JPMorgan
Also read: Historic rally for the S&P 500 is just getting started, says Wall Street veteran who called the April 2025 bottom
-Mark Hulbert
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April 24, 2026 07:55 ET (11:55 GMT)
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