3 Undervalued International Value ETFs

Key Concepts

• Undervalued International Stocks: Stocks of companies in developed markets outside the U.S. that are trading below their estimated fair value.
• Value ETFs: Exchange Traded Funds that focus on stocks considered undervalued based on fundamental metrics.
• Market Capitalization Weighting: An indexing method where companies with larger market caps have a greater influence on the index's performance.
• Fundamental Indexing: An indexing method that weights stocks based on fundamental financial metrics (e.g., sales, cash flow) rather than market capitalization.
• Morningstar Style Box: A visual tool used by Morningstar to categorize mutual funds and ETFs based on their investment style (e.g., growth vs. value, large-cap vs. small-cap).
• Fair Value Estimate: An analyst's or model's assessment of a stock's intrinsic worth.
• Basis Points (bps): One-hundredth of a percentage point (0.01%).

Undervalued International Value ETFs Poised for Growth

Despite a general trend of swollen valuations across global markets, certain areas, particularly international stocks, remain undervalued. While international equities have lagged historically, they showed a strong recovery in the first seven months of 2025. Even with this rebound, some international value ETFs still present compelling upside potential if their stock prices converge with their fair value estimates. A renewed focus on stable, economically significant global companies could further fuel this growth. This analysis highlights three undervalued international value ETFs that are well-positioned to benefit from these trends.

1. Schwab Fundamental International Equity ETF (FNDF)

• Key Features:
  • Expense Ratio: 25 basis points (bps) annually.
  • Performance (Jan-July 2025): 21% return.
  • Investment Strategy: Tracks the Research Affiliates Fundamental Index, which includes developed market stocks outside the U.S.
  • Weighting Methodology: Employs fundamental metrics such as sales and cash flow for weighting, rather than market capitalization.
  • Rebalancing: Increases exposure to stocks that become cheaper relative to fundamental metrics and reduces exposure to those that become more expensive.
  • Portfolio Allocation: Positioned on the value side of the Morningstar style box, while maintaining broad diversification across developed international markets.
  • Notable Holdings: Benefited from stakes in high-performing global conglomerates like Samsung and Shell.
  • Morningstar Rating: Silver medalist.
• Argument: FNDF's contrarian index, which prioritizes fundamental value over market cap, allows it to march to its own beat despite market trends. Its consistent exposure to steady companies and broad diversification are expected to extend its track record of solid risk-adjusted returns.

2. iShares MSCI EAFE Value ETF (EFV)

• Key Features:
  • Expense Ratio: 33 basis points annually.
  • Performance (Jan-July 2025): 23% return.
  • Investment Strategy: Market cap weights the cheaper half of the broad-based MSCI EAFE index, effectively targeting the value factor.
  • Weighting Methodology: Market capitalization weighting, which is considered an efficient method that leverages market wisdom on relative stock values.
  • Portfolio Allocation: Leans heavily into financial stocks, with multinational banks holding significant weight due to their large market capitalizations.
  • Notable Holdings: Large banks like HSBC and Axa can significantly influence fund performance.
  • Morningstar Rating: Silver medalist.
• Argument: EFV is designed to perform well when value stocks outperform. Its market cap weighting strategy ensures low turnover and accurate representation of the international value market. The pronounced lean towards financial stocks, while a concentration risk, proved beneficial in early 2025 due to the strong performance of major global banks.

3. Dimensional International Value ETF (DFIV)

• Key Features:
  • Expense Ratio: 27 basis points annually.
  • Performance (Jan-July 2025): Nearly 24% return, leading the foreign large value category.
  • Investment Strategy: Maintains a highly diversified portfolio with a tilt towards smaller stocks, profitable stocks, and those trading at low valuations.
  • Portfolio Characteristics: Focuses on stocks with historically strong associations with market-beating returns (profitability and low valuations).
  • Fair Value: Despite its strong performance, the ETF still trades below its fair value estimate, suggesting further room for appreciation.
  • Morningstar Rating: Silver medalist.
• Argument: DFIV's strategy, familiar to Dimensional investors, leverages historical data suggesting that profitability and low valuations are key drivers of long-term outperformance. Its strong performance in early 2025, coupled with its position below fair value, indicates continued potential for growth even as other markets become overvalued.

Conclusion

The current market environment presents a unique opportunity for investors seeking value in international equities. While broad market valuations are elevated, specific international value ETFs like FNDF, EFV, and DFIV offer exposure to companies trading below their intrinsic worth. Their distinct strategies, ranging from fundamental weighting to market cap weighting of value segments and a focus on profitable, low-valuation stocks, position them to capitalize on potential stock price convergence with fair value estimates and the ongoing recovery of international markets. The consistent performance and silver medalist ratings from Morningstar underscore their potential for solid risk-adjusted returns.