The election of President-elect Donald Trump has already sent shockwaves through the foreign exchange market, and now investors are feeling the pinch. According to an Investor’s Business Daily analysis of data from Morningstar Direct, nearly 99% of actively traded foreign exchange-traded funds (ETFs) are lagging behind the S&P 500 in total return this year.
The average foreign ETF has only managed a 7.9% gain, while the S&P 500 has seen its total return rise to nearly 29%. This gap is largely due to the strong US dollar and the lack of giant tech firms in international markets.
Ross Mayfield, an investment strategist at Baird Private Wealth Management, notes that the US outperforms the MSCI World ex-US Index by a median 9% in years when the dollar rises, but underperforms by 6% when it weakens. With President-elect Trump advocating for a weaker dollar, investors are uncertain about his ability to control its trajectory.
As a result, some foreign ETFs have suffered significant losses. Breakwave Dry Bulk Shipping (BDRY) has plummeted nearly 50% this year, while iShares MSCI Brazil is down by over 25%. The iShares MSCI Mexico ETF is also struggling, with a five-year annualized return of just 4.4%.
However, not all foreign ETFs are doing poorly. Larger and more diversified international ETFs like the $119-billion-in-assets iShares Core MSCI EAFE ETF (IEFA) are faring better, with a 5.7% gain this year.
For diversified investors seeking to include shares of European and Asian companies in their portfolios, broader international ETFs still make sense, according to Todd Rosenbluth of TMX Vetta Fi.
Source: https://www.investors.com/etfs-and-funds/etfs/trump-tariffs-terrorizes-these-tumbling-investments