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A Widening Disparity Between U.S. and International Stock ETF Performances

This article was originally published on ETFTrends.com.

U.S. equities and related ETFs have outperformed international markets, and the disparity may only continue to widen.

"The yawning gap between US and international equity performance persists unabated," Alec Young, Managing Director of Global Markets Research, FTSE Russell, said in a research note.

The iShares Russell 1000 ETF (IWB) , which tracks 1,000 U.S. large-cap companies, advanced 10.0% year-to-date. In comparison, the Vanguard FTSE All-World ex-US Index Fund (VEU) , which covers all world countries outside the U.S., fell 3.8% and the Vanguard FTSE Emerging Markets ETF (VWO) , which tries to reflect the FTSE Emerging Markets All Cap China A Inclusion Index, declined 10.5%.

U.S. equities may continue to outpace international markets due to diverging macroeconomic, fundamental and sentiment trends.

US ISM Manufacturing and Non- Manufacturing Index readings

Specifically, the surprisingly strong US ISM Manufacturing and Non- Manufacturing Index readings in August point to persisting US economic momentum ahead. However, investors should take these readings with a grain of salt as a flattening yield curve suggests August’s robust readings may be as good as they get this cycle, Young warned. Manufacturers surveyed also revealed rising constraints from supply-chain disruptions, tariffs and tight labor resources.

The U.S., though, still maintains an earnings growth advantage. While consensus earnings growth estimates point to a narrowing US fundamental advantage next year, earnings growth for the Russell 1000 Index at 9.0% is still better than the 8.3% growth rate projected for the rest of the world as represented by the FTSE World ex US Index.

Related: 4 Short-Term Bond ETFs for Attractive Yield-Generating Plays

Lastly, investors continued to strongly favor the US exposure and shunned international stocks. The FTSE Russell Composite Sentiment Indicator score of the Russell 1000 and FTSE World ex US over the past month also reveal a widening disparity in positive sentiment between US and international market outlook. The sentiment scores between the markets currently exhibit the widest spread between the two sentiment indicators in more than five years.

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