Prediction: This Magnificent ETF Will Crush the S&P 500 Over the Next 10 Years

There is a lot of concern about the longer-term direction of the stock market. Some leading investment strategists see a higher-for-longer interest rate environment and a sluggish period for the S&P 500 over the next decade.

Large-caps, which have been so dominant over the past 15 years, are generally overvalued, with the 10-year cyclically adjusted price/earnings (CAPE) ratio at over 40, the highest it's been since the dot-com boom. This has been due to a variety of factors, most notably, low interest rates and the AI boom.

Interest rates appear to be on a higher-for-longer track, and while the AI boom continues, many believe its influence will spread beyond tech and beyond borders, lifting smaller caps, value stocks, and international companies.

If you're looking for an exchange-traded fund (ETF) to beat the market over the next 10 years, consider the iShares Global Equity Factor ETF (NYSEMKT: GLOF). Here's why.

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Global value with momentum

The iShares Global Equity Factor features many of the attributes that should outperform over the next decade.

It is a global fund, which means it includes stocks from around the world, including the United States. U.S. stocks currently make up the bulk of the portfolio at 61%, while Japan is at 7%, and Taiwan, the U.K., and China are all next at around 3% each. But over time, that could shift more toward international geographies as the markets change.

Also, it tracks the STOXX Global Equity Factor index, which comprises large- and mid-cap stocks selected to maximize exposure to five factors: momentum, quality, value, low volatility, and size. The stocks in the ETF have the highest scores from each of these factors.

So, it not only goes beyond borders, but it also features large- and mid-cap stocks from stable, quality companies that are good values with price momentum. It is built to limit risk while seeking out stocks with price momentum. Currently, it holds 684 stocks with Apple, Nvidia, and Microsoft as the three largest holdings.

Built to beat the benchmark

This ETF features many of the attributes that should allow it to outperform in the years ahead. It has held up pretty well against the S&P 500 over the past 10 years, posting an annualized total return of 12% vs. 15.4% for the S&P 500.

But if you look over the past one- and three-year periods, it has beaten the S&P 500. It has a one-year return of 15.8% compared to 13.5% for the S&P 500. And its three-year average annualized return is 24.1% compared to 23.7% for the large-cap benchmark.

The last few years have generally been more favorable for international stocks, and that trend will likely continue. Plus, in an overvalued market, this ETF will focus on those stocks with momentum that are relatively cheap and stable. That should give it plenty of traction to beat the S&P 500 over the next 10 years.

Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.