26 Stock and Fund Picks Based on New Expert 2022 Forecasts

Every January, Morningstar’s Christine Benz shares the long-term stock and bond forecasts from several highly respected investment firms. Why?

“Market return expectations can be most useful when setting expectations, and in turn your plan,” says Benz. “While predicting the market’s direction over the short term is difficult and probably folly, you need to plug in some type of long-term return assumption when deciding if your savings rate and time horizon are appropriate given what you’d like to achieve.”

Given 2022′s market weakness, a few of the investment firms have updated their forecasts. The upshot: Their return expectations for both U.S. stocks and bonds have improved since the start of the year. But most firms continue to expect better returns from international stocks than U.S. stocks and bonds during the next decade. (Read “Experts Predict Stock and Bond Market Returns: Bear-Market Edition“ for their new forecasts.)

With that in mind, today we’re taking a look at some highly rated stocks, mutual funds, and exchange-traded funds to consider if you’d like to increase your exposure to non-U.S. stocks.

How to Invest in International Stocks

For investors who are comfortable buying individual stocks, Morningstar’s approach to smart stock investing applies around the globe. First, favor companies with durable competitive advantages, or economic moats. These companies should be able to fend off competition and outearn their costs of capital for years to come. Then, buy these companies when they’re trading below what they’re worth—in our parlance, below our fair value estimates. (Read more about our approach to stock investing in Morningstar’s Guide to Stock Investing.)

To find cheap yet competitive international stocks, let’s turn to the Morningstar Global ex US Moat Focus Index for some ideas to investigate further. This quality-focused index is a subset of the Morningstar Global Markets ex US Index, a broad index representing 97% of developed-markets (excluding the United States) and emerging-markets market capitalization. Morningstar ranks the wide- and narrow-moat stocks in the broad index by lowest price/fair value to find the 50 cheapest. These stocks represent the most compelling values among the global moat universe, according to Morningstar metrics.

10 Undervalued International Stocks

Here are 10 undervalued stocks that are among the Morningstar Global ex US Moat Focus Index’s most heavily weighted holdings as July 25, 2022.

1. Sinopharm Group SHTDF
2. Imperial Brands IMBBY
3. HSBC Holdings HSBC
4. KT Corp KT
5. Swire Properties SWPLY
6. Meiji Holdings MEJHF
7. ABN AMRO Bank AAVMY
8. Anheuser-Busch InBev BUD
9. NetEase NTES
10. Nice NICE

The stocks on this list represent a wide range of industries, including a couple of banks (HSBC Holdings and ABN AMRO Bank), a well-known brewer and cigarette maker (Anheuser-Busch and Imperial Brands), and a few technology and communications names (NetEase, Nice, and KT Corp), among others. The companies originate in a variety of countries, including Belgium, China, Japan, Hong Kong, Israel, the Netherlands, South Korea, and the United Kingdom. You can find the index’s complete holdings on the Morningstar Global ex US Moat Focus Index report page.

How to Invest in International-Stock Funds

For investors who would rather not pick individual stocks, plenty of mutual funds and ETFs provide broad-based exposure to international stocks. When it comes to choosing funds, a good place to start is by consulting the Morningstar Analyst Rating. The goal of the rating is to find mutual funds and ETFs that Morningstar expects to outperform during a full market cycle; our analysts consider fund costs, management, and investment process, among other factors. (Read more about how we evaluate funds in Morningstar’s Guide to Fund Investing.)

There are many different types of international mutual funds and ETFs. Some international funds invest globally, which means they include U.S. stocks, while others only buy stocks of non-U.S. companies. Some funds and ETFs focus exclusively on developed markets, some favor emerging markets, and still others blend the two. Others may focus exclusively on a particular region or country—such as Europe or China, for example—or a particular theme, like real estate or technology.

For purposes of this article, we’re focusing on what we consider to be “broad” international-stock funds that exclude U.S. stocks and favor large and/or small companies from both developed and emerging markets. These are the types of mutual funds and ETFs that can be the foundation of the international portion of an investor’s portfolio.

16 Top-Rated International-Stock Funds

This list includes all mutual funds and ETFs that land in one of our broad international-stock categories with at least one share class that earned an Analyst Rating of Gold as of July 25, 2022.

1. American Funds International Growth and Income IGFFX
2. Causeway International Value CIVVX
3. DFA International Core Equity DFIEX
4. DFA International Small Cap Value DISVX
5. DFA International Small Company DFISX
6. Dodge & Cox International Stock DODFX
7. FMI International FMIJX
8. iShares Core MSCI Total International Stock ETF IXUS
9. MFS International Equity MIEIX
10. Oakmark International OAKIX
11. Oakmark International Small Cap OANEX
12. Vanguard FTSE All-World ex-US ETF VEU
13. Vanguard FTSE All-World ex-US Index VFWAX
14. Vanguard FTSE All-World ex-US Small Cap ETF VSS
15. Vanguard Total International Stock ETF VXUS
16. Vanguard Total International Stock Index VGTSX

A few different international Morningstar Categories are represented among our Gold-rated list, along with passive and active options.

Foreign large-cap funds tend to focus on Europe, specifically established markets in France, Germany, Switzerland, the Netherlands, Spain, Italy, and the United Kingdom. They often hold significant positions in Asia, as well. And although they dabble in emerging-markets stocks, they often cap their exposure to those markets at about 15% of assets. Foreign small/mid-cap funds, meanwhile, often carry larger emerging-markets positions.

These figures are only averages, though; actual fund breakdowns differ. Knowing how a fund’s market exposure diverges from the average allows for better performance expectations—and better investor outcomes. For instance, emerging-markets stocks tend to be more volatile than developed-markets stocks. As a result, stock funds with higher emerging-markets stakes will exhibit performance very different from their peers’ when emerging markets soar or sink.

Low-cost index funds are well-represented on the list. Passive international-stock funds have posted competitive returns against their actively managed counterparts, thanks in large part to rock-bottom expenses and modest trading costs.

How to Find More Highly Rated Stocks, Mutual Funds, and ETFs

Although the experts expect international stocks to outperform other asset classes during the next decade, they’ve also lifted their expectations for the returns of U.S. stocks and bonds during the coming 10 years. Investors who may be looking to put some money to work in U.S. securities can find ideas to investigate further in ”33 Undervalued Stocks for 2022,” “The Best Bond ETFs,” and “The Best Core Stock Fund for 2022.”

Investors who’d like to be more hands-on and find stocks, mutual funds, and ETFs based on their own personal selection criteria can use our new Morningstar Investor Screener. The tool allows Morningstar Investor members to screen securities based on the criteria that matter most to them.