The International ETF for Investors Looking Beyond U.S. Stocks

International stocks have generally outperformed U.S. stocks this year, continuing the outperformance trend from last year.

And some leading strategists expect continued strength in international markets driven by attractive valuations, a weakening dollar, defense and infrastructure spending, and other growth trends.

The glow up for international stocks makes them an attractive option for portfolio diversification. A great way to diversify internationally is through an exchange-traded fund (ETF) that invests in only stocks from foreign markets.

While there are dozens of solid options, one of the absolute best international ETFs out there is the Invesco S&P International Developed Momentum ETF (NYSEMKT: IDMO).

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Riding the momentum

The Invesco S&P International Developed Momentum ETF tracks the S&P World Ex-U.S. Momentum Index. That portfolio consists of about 192 international stocks from developed markets with the highest momentum scores within the larger S&P World Ex-U.S. Index, which tracks about 1,000 large-cap and mid-cap international stocks.

The momentum stocks in the portfolio are those with better recent performance and upward price movements than other stocks in the larger index. So, at all times, the ETF strives to hold the stocks that are outperforming.

The portfolio is composed mostly of stocks from developed European and Asian nations (except Korea, which is excluded), along with the U.S. Japanese stocks comprise 22% of the fund, followed by Canada at 16% and the U.K. at 13%. Spain represents 10% of the stocks, while Germany makes up 8%.

The three largest holdings are HSBC Holdings, based in London, Toronto-Dominion Bank, based in Canada, and Banco Santander, based in Spain.

Built to outperform

The ETF is designed to outperform, based on its momentum structure, and it has done so. This year, IDMO is up about 8% year to date, which is slightly better than the 7% return for the S&P 500.

Over the long term, it has been one of the best-performing international ETFs. It has a five-year average annualized return of 16.2%, which is among the best in its class of global ex-U.S. ETFs.

The Invesco S&P International Developed Momentum ETF's five-year performance even beats both the Russell 1000 and the S&P 500. Over the past five years, the Russell 1000 has averaged about a 12.6% annualized return, while the S&P 500 has averaged a roughly 13.4% annualized return over that stretch.

There are a lot of good international ETFs out there, but you'll have a hard time finding a developed market international ETF that has performed better than IDMO over the longer term.

HSBC Holdings is an advertising partner of Motley Fool Money. Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool recommends HSBC Holdings. The Motley Fool has a disclosure policy.