International Quality

International Can Be Good, but International Quality Can Be Great

  • Quality companies (those with high ROE, stable earnings, and low leverage) have historically performed better than broad-based core international companies in down markets.
  • These charts show how an emphasis on quality generated stronger absolute and risk-adjusted returns over the last 23 years.
Risk and Return
December 30, 2000–December 31, 2023

Source: FactSet, MSCI. As of December 31, 2023. Past performance is no guarantee of future results.

A Focus on Quality May Help Limit Losses in a Downturn

  • International quality underperformed international core in 2022, a year in which rising interest rates upended markets. However, in the prior six bear markets, international quality demonstrated greater resilience than international core.
Peak to Trough Performance of International Quality vs. Core Index

Source: FactSet, MSCI. International and International Quality are respectively represented by the MSCI ACWI ex USA and MSCI ACWI ex USA Quality. Past performance is no guarantee of future results.

Attractive Fundamentals

  • Some consider international small cap stocks to be a “low quality” segment of the global equity markets. In reality, international small caps have demonstrated better quality when it comes to ROA, ROE, equity valuations, and amount of leverage versus U.S. small caps.
International Small Caps Have Attractive Fundamental Characteristics

Source: FactSet. As of December 31, 2023. International Small Cap and U.S. Small Cap are represented by the MSCI ACWI ex USA SC and Russell 2000® Indices, respectively. See back cover for Index definitions.
Return on assets (ROA)—An indicator of how profitable a company is relative to its total assets. Calculated by dividing a company’s annual earnings by its total assets.
Return on equity (ROE)—The amount of net income returned as a percentage of shareholder equity.
Historical earnings per share (EPS) growth—Historical growth of a company’s profit allocation to each outstanding share of common stock.
Long-term forward earnings per share (EPS) growth—Growth of forecasted, or estimated, portion of a company’s profit allocation to each outstanding share of common stock.
Price-to-earnings ratio (P/E ratio)—A ratio for valuing a company that measures its current share price relative to its per-share earnings.
Debt-to-equity ratio (D/E ratio)—A measurement of a company’s financial leverage calculated by dividing a company’s total liabilities by its stockholders’ equity.

Diversification does not guarantee a profit or protect against a loss in declining markets.


Investments in international securities are subject to certain risks of overseas investing including currency fluctuations and changes in political and economic conditions, which could result in significant market fluctuations.


Investments in small capitalization companies are subject to risks such as erratic earnings patterns, competitive conditions, limited earnings history and a reliance on one or a limited number of products.


Investments in frontier emerging markets and emerging markets are subject to risks such as erratic earnings patterns, economic and political instability, changing exchange controls, limitations on repatriation of foreign capital and changes in local governmental attitudes toward private investment, possibly leading to nationalization or confiscation of investor assets.


Market prices of investments held by the Fund may fall rapidly or unpredictably due to a variety of economic or political factors, market conditions, disasters or public health issues, or in response to events that affect particular industries or companies.


Alpha, often considered the active return on an investment, measures the performance of an investment against a market index used as a benchmark, since the benchmark is often considered to represent the market’s movement as a whole. The excess return of a fund relative to the return of a benchmark index is the fund’s alpha.


The Sharpe ratio is calculated using standard deviation and excess return to determine reward per unit of risk. The higher the Sharpe ratio, the better the portfolio’s historical risk-adjusted performance.


Standard deviation is used as a measure of an investment’s volatility. It calculates the variability of returns by comparing a mutual fund’s return in each period with the average return across all periods. The standard deviation is not available for periods of less than three years.


Click here for index definitions. All investments are subject to risk including possible loss of principal.


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Indices are unmanaged, are not available for investment and do not incur expenses.


All data referenced are from sources deemed to be reliable but cannot be guaranteed as to accuracy or completeness.


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