Investors are clamoring for foreign equities investments. Foreign equities ETFs performed very well in 2025, and many market outlooks see potential for strong repeat performance in 2026. It may not be straightforward, however, especially for simple, passive, market cap-weighted foreign equities ETFs. By adding one particular wrinkle, certain foreign equities ETFs may be able to provide that stellar foreign equities performance investors are looking for. See more: 3 Stocks Driving Emerging Markets ETF AVXC's ...

Core Viewpoint - The discussion centers around the performance of foreign equities in 2026, with contrasting views on whether they can replicate the strong returns seen in 2025. One analyst expresses skepticism about the sustainability of last year's gains, while the other remains optimistic about continued favorable conditions for international strategies [1][7]. Performance Metrics - The S&P World ex-U.S. Index achieved a 34.5% return as of January 9, 2026. Notable ETFs included the KraneShares Emerging Markets Consumer Technology Index ETF (KEMQ) with a 56.2% return, the Avantis International Small Cap Value ETF (AVDV) at 49.4%, and the VanEck Africa Index (AFK) with a remarkable 74.7% return in 2025 [3][4]. Market Conditions - The uncertainty surrounding the U.S. economy continues to drive investor interest in foreign equities. The U.S. job market showed weak performance, adding only 50,000 jobs in December 2025, which was below expectations and marked the lowest job growth in five years [9][10]. - Geopolitical risks are highlighted as a significant concern for foreign equities in 2026, with potential conflicts in regions like Venezuela and Ukraine posing threats to market stability [23][25][26]. Investment Opportunities - Diversification through international markets is emphasized, with both developed and emerging markets presenting strong opportunities. Investing in a mix of these markets can enhance portfolio diversification [11][19]. - The American Century Quality Diversified International ETF (QINT) is noted for its strategy of investing in large- and mid-cap stocks outside the U.S. with strong fundamentals, achieving a 38.02% return year-to-date as of December 31, 2025 [22][21]. Sector Analysis - The discussion includes a focus on sectors such as precious metals and technology, with a cautionary note on the sustainability of returns from mining-focused ETFs. The potential for growth in AI and defense sectors is also mentioned, driven by increased spending commitments from NATO members [12][18][17]. Regional Insights - Analysts express concerns about Europe's growth potential, citing slower earnings growth and structural challenges. The outlook for Asia, particularly India, is also cautious, with projections indicating a slowdown compared to 2025 [14][15]. - China's market is highlighted for its resilience and potential growth opportunities, particularly in the tech sector, with expectations for a new five-year plan to stimulate the economy [32][33].

Core Insights - Foreign equities performed well in 2025, driven by trends outside the U.S. and tariff-related uncertainty, leading U.S. investors to seek ex-U.S. offerings [1] - The same trends are expected to continue into 2026, prompting renewed interest in foreign equities [1] Company Insights - T. Rowe Price has launched the Active Core International Equity ETF (TACN), which charges a zero basis point fee until January 30, 2027, and 0.2% thereafter [2] - TACN combines quantitative research with fundamental analysis, aiming to maintain disciplined risk controls, making it a robust long-term active solution for foreign equities allocations [4] Industry Insights - Active ETFs are gaining popularity among investors for their flexibility and fundamental analysis capabilities [3] - The current market conditions, including a declining dollar and inflation uncertainty, present significant opportunities in ex-U.S. equities, making TACN's active core approach appealing for portfolio refreshment [6]

Core Insights - Avantis Investors combines active and passive investing strategies to enhance portfolio performance, particularly through its "Systematic Active" approach in equities and fixed income ETFs [1] - The firm has surpassed $100 billion in total fund assets under management (AUM) since its inception in 2019, focusing on cost-conscious investment strategies while leveraging active management for customized asset allocations [2] Performance Highlights - The Avantis International Small Cap Value ETF (AVDV) has achieved a year-to-date return of 49.2%, significantly outperforming its category average across various time frames [4] - AVDV charges a fee of 36 basis points and aims to combine the benefits of indexing, such as transparency and diversification, with active management's value-driven decision-making [3] Investment Strategy - AVDV's strong performance is attributed to its focus on mining and metals firms, with no single sector exceeding 17% of the portfolio as of December 23rd [5] - The ETF is positioned as a strong long-term hold for investors seeking exposure to foreign equities, effectively integrating both active and passive investment strategies [5]

Core Insights - Emerging market equities, including ex-U.S. stocks, have shown strong performance in 2023, providing significant upside outside of major tech stocks driven by AI [1] - Geopolitical risks have escalated, complicating foreign investments, with events like the Russian invasion of Ukraine and tariff wars creating layered challenges [1][2] - Active ETFs can leverage fundamental research to navigate geopolitical volatility, potentially outperforming passive funds in uncertain markets [3][4] Investment Strategies - Passive funds face challenges in low-information markets, as strict allocation rules can hinder performance during geopolitical events [2] - Active ETFs, such as the T. Rowe Price International Equity ETF (TOUS), utilize fundamental research to identify firms with strong cash flow and profitability, allowing for quicker adaptation to external shocks [4] - The flexibility of active ETFs positions them as a valuable addition to portfolios, especially in the face of geopolitical risks where passive funds may struggle [5]

Group 1 - The US Dollar Index (DXY) is experiencing a strong second half of 2025, with a 2% increase, marking a bullish reversal from significant losses in the first half of the year [1] - Despite the typical negative impact of a rising dollar on foreign equities, there have been notable gains in this sector [1]