These 2 Asset Classes Had the Best February. Can It Continue?

The rotation out of mega tech stocks like the "Magnificent Seven" and into other asset classes continued apace in February. Let's see who did best -- and whether that can continue.

The best performing asset class during the month was developed economy stocks excluding the U.S., as measured by the Vanguard FTSE Developed Markets Index Fund ETF (NYSEMKT: VEA). It climbed 6.1% in February and is up about 7.5% for the year.

Gold rose 8.7% during the month, but that's a single commodity, not an asset class. Real estate investment trusts, both foreign and domestic, also did well in February. Foreign REITs were up 5.8% for the month, while U.S. REITs rose 5.4%.

For comparison, the S&P 500 index was down 0.9% during February and is down about 0.7% for the year after taking a nosedive in recent days due to market jitters about the ongoing war in the Middle East. That index is weighted, so companies with the largest market caps, basically the Magnificent Seven, can move it more than others.

Meanwhile, the Nasdaq-100 index was down 2.3% during the month. The largest holdings in that index are the Magnificent Seven stocks.

Global investors have been diversifying away from U.S. equities

The VEA ETF holds a diversified mix of large-, mid-, and small-cap stocks from advanced economies around the world. About half the index is comprised of European companies, and more than a third from Pacific nations. Canada and the Middle East make up the remainder.

Stocks from those nations have done well relative to U.S. stocks in recent months because of healthy economic growth and government fiscal stimulus over the past year, as well as a growing preference among global investors for non-U.S. stocks due to tariffs and other U.S. policies implemented in 2025 and 2026.

High valuations of U.S. stocks -- which make them expensive relative to earnings -- also played a part, as investors began to look for better values in other developed markets.

Image source: Getty Images.

As for REITs, they tend to rise at the prospect of lower interest rates, as they rely heavily on debt to finance properties. And futures markets have indicated the possibility of lower-than-expected interest rates by the end of this year.

Both of those trends -- falling interest rates and diversification away from U.S. stocks -- look very likely to continue over the next few months, so international stocks and REITs could well continue to outperform other asset classes. Gold and crude oil may also outperform, as gold is a hedge in uncertain times (like during wars), and war in the Middle East always sends crude prices higher.

Investors wishing to gain exposure to some of these asset classes might consider Vanguard's developed market ETF, mentioned above, the Vanguard Global ex-U.S. Real Estate Index Fund ETF (NASDAQ: VNQI), and the Vanguard Real Estate Index Fund ETF (NYSEMKT: VNQ).

By the way, the price of Bitcoin plummeted nearly 22% during the month of February. That asset has dropped by almost 45% since hitting an all-time high of $124,310 per token back in October of last year.

Matthew Benjamin has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard FTSE Developed Markets ETF. The Motley Fool has a disclosure policy.