ETF Specialist

Foreign Index Funds and Dunn's Law

Daniel Sotiroff

With many foreign stock index funds turning in mediocre performance over the past decade, investors may be wondering: Is the case for indexing foreign stocks dead?

The primary thesis for investing with index funds is well-known and accepted. Investors get a diversified portfolio of stocks at a low expense ratio, and low fees should translate into superior performance relative to the more expensive, actively managed alternatives in a given asset class. But that has not been the case with index trackers in the foreign large-blend Morningstar Category for the trailing 10 years through May 2018. A deeper dive indicates that the lackluster performance of the aggregate foreign stock market is at least part of the reason, but the case for these funds is just as strong as it has ever been.

Daniel Sotiroff does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.