Equities around the world have lost some strength, but focused foreign representatives have been resilient.
International equities continue to hold onto the top spot in our DALI rankings, despite losing some steam in September. We saw the international equities asset class drop 15 RS buy signals since the end of August. Domestic equities have lost slightly more strength, dropping 16 RS signals over the same timeframe, leaving foreign stocks as the current RS leader.
International equities are typically broken into two initial classifications, emerging markets and developed markets. Emerging markets have been in focus throughout much of the year, with the iShares MSCI Emerging Markets ETF (EEM) up over 25% and possessing a fund score of 4.94 (as of 9/21). The broad developed representative, the iShares MSCI EAFE ETF (EFA) trails its emerging counterpart in returns ( up 10%) and fund score (4.00) over the same period. However, both charts look favorable, especially with EEM reversing back up into a column of X’s to form a double top with Tuesday’s action.
We can take this breakdown a step further by looking at our NDW Country Index Matrix rankings. These rankings evaluate 41 country indices up against one another to determine the strongest and weakest areas around the world. We look toward the top ten countries as the favorable areas for investment, with the next ten representing areas to consider or hold.
Emerging markets dominate the top ten with seven representatives. Most of those names come from emerging Europe, including Hungary, Greece, Poland, and Austria. This makes sense given Emerging Europe is also the highest ranked regional breakdown in the DALI sub asset rankings. Hungary and Italy have been the most consistent members of the top ten ranked countries, as each have maintained the high positions since 2023. Poland and Singapore have been the most recent additions to the top of the rankings, while Poland has gained the most strength since the end of August.
Japan is the most recent entry to the next 10, moving to the 20th position in September. This is the first time that country has been included in the top half of the rankings on a month-over-month basis since 2024. Most of the representatives in positions 11 through 20 have been losing strength, including Israel, which just fell out of the top ten for the first time since October 2024.
Another way to look at country RS is through a model of investible products, such as the iShares International Model. This strategy looks at 43 international representatives, including mostly individual country exposure in addition to some broad representatives. Each of these names are stacked up against one another in a matrix, similar to the NDW Country Index Matrix. The Model looks to buy the ETFs ranked in the top five, holding them until they fall to the 11th position or lower at each weekly evaluation. This is different than most matrix models – as the 11th position is several places above the typical sell threshold set at the half-way point. However, the strategy still has a very reasonable amount of turnover at just 55% annualized since the inception of the model in 2003, or about 95% if we just look at the past ten years. That equates to roughly three to five trades per year for the five holding model.
The model’s current holdings match up with the top-ranked names in the NDW Country Index rankings, including Austria (EWO), Israel (EIS), Italy (EWI), Peru (EPU), and Taiwan (EWT). It helps the investment case to see different RS rankings confirm one another, adding to the positive weight of the evidence of the areas in favor.
The iShares International Model is currently working on its second consecutive year of outperformance over the broad international representative ACWX, besting that fund by more than 13% so far this year. That sounds great, until you see that the strategy underperformed ACWX for the two years before that (2023 and 2024). It helps to look at a full picture of performance, including throwing in a domestic equity representative like SPY into the comparison. We can do this through the Quilt tool on the site, then lock SPY to more easily look at good years for international equities vs. years where foreign stocks struggled. There have been 11 years since 2003 that saw ACWX best SPY, including year-to-date 2026. All but one of those years saw the Model beat both broad benchmarks, with 2017 being the lone outlier. On the other hand, the years that saw the model struggle the most were also the years that international equities remained generally weak.
In summary, international equities have begun to lose steam, but they have been more resilient than US stocks, leaving them at the top of the DALI rankings. Periods that are favorable for foreign stocks tend to be even more favorable for the individual countries leading the broad benchmarks higher. Using a strategy that focuses on exposure to strong areas can help maintain momentum as long as international equities continue to be resilient.
