Investment Primer: The Global Ex-U.S. Size & Style Composite

Share

What, Why, and How of Global Ex-U.S. Size & Style

The Global Ex-U.S. Size & Style composite includes funds that serve as the international and emerging market counterparts to U.S. equity funds. These are foundational building blocks for creating a globally diversified portfolio. The “why” is to gain exposure to economic growth, innovation, and investment opportunities in companies located outside of the United States.

The “how” is achieved by targeting specific international market segments. The primary categories include Dev Ex-U.S. (developed markets like Europe, Japan, and Australia), Emerging (countries with developing economies like China, India, and Brazil), and broader International funds that may combine both. Within these geographic segments, funds are further broken down by company size (Large, Mid, Small Cap) and investment style (Value, Blend, Growth), allowing for precise portfolio construction.

Portfolio Construction Approaches

Global Ex-U.S. funds can be used in several ways to build the international equity portion of a portfolio.

  • Core: This approach involves using a single, broad-based fund as the central international holding. A common example is a passive Dev Ex-U.S. Large Cap Blend ETF that tracks a major international index like the MSCI EAFE. An investor might also choose a diversified active fund as their core, believing in the manager’s skill to navigate different global market environments.
  • Build Your Core: This approach involves combining different geographic or style funds to create a customized international core. For example, an investor might combine a Dev Ex-U.S. ETF with an Emerging Markets ETF to control their specific allocation to each region, rather than buying a single fund that predetermines the mix.
  • Concentrated Alpha Strategies: This involves blending more focused satellite positions around a central international core. An investor might use a passive Dev Ex-U.S. fund as their core and add a concentrated, actively managed Emerging Markets Small Cap fund in an attempt to generate “alpha,” or returns above the international benchmark.

A Practical Guide to Locating Funds in the ETF Action Database

A proper peer group is essential for any comparative analysis. A good starting point is the Global Ex-U.S. Size & Style ETF Dashboard, which groups all relevant ETFs by composite and category, with hyperlinks to the ETF Database for deeper analysis.

Foundational Screening: Building the Initial Universe

The first step is to use the top-level classification filters to isolate funds within the Global Ex-U.S. Size & Style composite.

  • Step 1: Select the Database. Navigate to the ETF, Mutual Fund, or other desired database.
  • Step 2: Filter by Asset Class. Select Asset Class = Equity.
  • Step 3: Filter by Composite. Select Composite = Size & Style – Global Ex-U.S.
  • Step 4: Filter by Category. To focus on a specific segment, select the desired Category (e.g., Global Ex-U.S. Large Cap – Blend, Emerging Large Cap).

3.2 Advanced Filtering: Refining Your Peer Group

After the foundational screen, the list can be refined by screening for outliers and unique characteristics.

  • Brand (Issuer): Investors may prefer to stick with established fund providers with long track records in international investing.
  • Assets Under Management (AUM): Setting a minimum AUM threshold can screen out smaller funds that may face viability risks.
  • Expense Ratio: Costs are a critical factor, especially in international funds where they can be higher.
  • Liquidity (ETFs only): For ETFs, metrics like average daily trading volume and bid-ask spreads are important.
  • Market, Region, Country: These filters are crucial for international funds, allowing you to target or exclude specific areas (e.g., find a ‘Dev Ex-U.S.’ fund that excludes Japan, or an ‘Emerging’ fund focused only on Latin America).
  • ESG Flag: For investors with sustainability goals, the ESG Flag allows you to screen for funds that apply environmental, social, or governance criteria.

A Framework for Evaluating Global Ex-U.S. Funds

For international equity funds, a thorough evaluation requires a deep look “under the hood” to understand not just sector and style exposures, but also the critical geographic and currency risks. ETF Action’s institutional-grade datasets are essential for this multi-layered analysis.

4.1 Risk/Return Analysis: The Importance of Benchmarks

The foundational step is to analyze a fund’s historical risk and return profile against an appropriate benchmark. For international funds, this is crucial for judging performance in the correct context.

ETF Action assigns a Beta Tracker to each category—a specific, broad-based ETF chosen to represent that market segment (e.g., a large MSCI EAFE ETF for the Dev Ex-U.S. Large Cap Blend category). Key metrics from the Risk & Return report should be compared against this Beta Tracker to gauge performance. While the examples below are some of the most common, ETF Action’s comprehensive datasets provide a full suite of risk statistics for deeper insights.

  • Total Return: How has the fund performed over various time periods compared to its international benchmark?
  • Standard Deviation (Volatility): Was the fund more or less volatile than its benchmark?
  • Sharpe Ratio: Did the fund provide better risk-adjusted returns?
  • Alpha: Did the fund add value beyond what would be expected based on its market risk?
  • Up/Down Capture Ratios: How did the fund perform relative to its benchmark during periods of international market gains versus losses?

Quantitative Analysis: The Power of Look-Through Analytics

For international funds, look-through analysis is even more critical than for U.S. funds. A fund’s name only tells part of the story; its holdings reveal the true geographic and currency exposures that drive performance.

  • Geographic Exposure (Market, Region, Country): This is the most important look-through analysis for international funds. Does a “Dev Ex-U.S.” fund have a 25% weight to Japan and 5% to the UK, or the reverse? Is an “Emerging” fund heavily concentrated in China, or is it diversified across Asia, Latin America, and Africa? Understanding these country and regional weights is crucial for managing geopolitical risk and targeting specific economic exposures.
  • Sector & Industry Exposure: As with U.S. funds, understanding sector bets is key. An international fund heavily tilted toward Financials will perform very differently from one tilted toward Technology.
  • Concentration: Look-through data reveals how concentrated a fund is in its top holdings, which is important for understanding idiosyncratic risk from specific non-U.S. companies.
  • Overlap Analysis: When combining international funds, overlap analysis is vital to ensure true diversification and avoid unintentionally overweighting a specific country or region.

While a detailed, manual look-through analysis provides the deepest insights, it can be time-intensive. ETF Action’s derived analytics are designed to simplify this process by providing a completely objective, rules-based framework. It’s important to distinguish between classifications and derived analytics. The classifications, such as the Equity – Market Assignment (Dev Ex-U.S., Emerging) or Equity – Region Assignment (Eurozone, Asia-Pacific), are rules-based labels that place a fund into a specific bucket, which is powerful for initial screening. The derived analytics, like the Equity – Sector Concentration rating or the various factor tilt scores, offer a more nuanced view. They quantify the intensity of a fund’s characteristics on a numeric scale relative to a broad global market benchmark. This dual system of objective classifications and quantitative ratings provides a powerful framework to more efficiently search for funds and conduct an initial evaluation.

Qualitative Analysis: Evaluating the Strategy

The Strategy classification provides a high-level guide to a fund’s approach, which dictates the qualitative evaluation.

  • Beta: For passively managed funds, the key is to understand the index methodology. How does the index select and weight countries and companies? The Implementation field details this, showing whether the fund is market-cap weighted, equal-weighted, or uses an alternative scheme.
  • Factor & Tactical: For actively managed funds, the focus is on the manager’s process. How do they make country allocation decisions? What is their process for selecting individual non-U.S. stocks? The qualitative review should confirm that the manager’s philosophy is reflected in the portfolio’s look-through characteristics.

Ready to Put This Knowledge to Work?

The best insights come from the best tools. Join ETF Action to screen, compare, and analyze thousands of ETFs with our premium suite of resources for serious investors.