With international equities being more relevant than they have been in some time, does relative strength suggest a preference for value- or growth-focused foreign stocks?
When it comes to domestic allocation, much attention is spent debating between growth and value stocks. However, far less time is spent considering the strength of value versus growth stocks on the international front despite most portfolios holding allocation to the group. With international equities being more relevant than they have been in some time, does relative strength suggest a preference for value- or growth-focused foreign stocks?
The most common investment decision within international equities is usually the trade off between developed or emerging markets. Developed regions are typically more established countries with advanced infrastructure and financial systems, offering greater stability. Meanwhile, emerging markets have less advanced economies but often provide higher growth prospects. Currently, emerging markets offer slightly more relative strength, with the iShares MSCI Emerging Markets ETF (EEM) holding a fund score of 5.59 that’s more than a full point higher than the 4.46 score of the iShares MSCI EAFE ETF (EFA).
Despite their broader differences, both markets offer companies that have a distinct value or growth tilt, with those styles offering differing levels of strength. Given these stylistic differences, which style reigns supreme within each market?
Developed Markets
Within developed markets, the iShares MSCI EAFE Value ETF (EFV) and the iShares MSCI EAFE Growth ETF (EFG) can serve as representatives for the different style groupings. Comparing the relationship between the two, we see that EFV is currently favored across both the short- and long-term on its RS chart versus EFG. Following the signals has historically been an additive strategy, outperforming both EFV and EFG on their own. Meanwhile, EFV holds more robust fund score of 5.64 compared to 4.21 for EFG. Overall, developed equities have seen the most strength from value areas, which might be partially driven by the sector makeup of developed markets.
Given the lack of tech giants in Europe, markets there have rallied around sectors like financials, industrials, and healthcare. Financials represents the largest allocation of any sector within EFA while EFV has an even larger 40% exposure to the group, allowing both to benefit from the strong run of the sector. Looking at the iShares MSCI Europe Financial ETF (EUFN), the fund has risen more than 60% since the start of 2025. Consequently, EUFN has an extremely strong fund score of 5.71, which is 0.82 points higher than the average European fund. It’s also on a streak of seven consecutive buy signals and most recently completed a bullish catapult at $35.50.
Emerging Markets
While there’s no publicly traded growth-specific funds for emerging markets, there is the Dimensional Emerging Markets Value ETF (DFEV). Currently, DFEV holds a near-perfect fund score of 5.96, in addition to a positive score direction of 2.26. Meanwhile, the broader EEM holds a fund score of 5.59, putting it behind the value representative. That said, both funds are trading above the top of their 10-week trading bands, so those looking to buy should first wait for a pullback or period of consolidation before doing so. While just one representative, the strength of DFEV over other emerging market funds does suggest that the market prefers value areas over growth even in emerging markets.
The Bigger Picture
Lastly, there are broad-based international value funds out there for those not interested in focusing on one market or the other. The iShares MSCI Intl Value Factor ETF (IVLU) is a solid example with a fund score of 5.84. IVLU is also on a string of three consecutive buy signals and has traded in a positive trend dating back to late 2022. For context, the broad iShares MSCI ACWI ex US ETF (ACWX) holds a score of only 4.56, with IVLU holding near- and long-term strength on the RS chart versus ACWX as well.
Domestic and international equities continue to sit in the top two spots of DALI’s asset class rankings, but it seems that strength stems from two different places. Whether you focus on emerging, developed, or broader international markets, relative strength resides most prevalently abroad in value-oriented areas. Unlike foreign equities, strength within the US market is concentrated heavily in technology and growth stocks. As a result, international value could serve as both strong investments and further diversification from current domestic leadership.
