Why State Street SPDR Developed World ex-US is a Strong International ETF

Schwab International Equity ETF (NYSEMKT:SCHF) and State Street SPDR Portfolio Developed World ex-US ETF (NYSEMKT:SPDW) provide nearly identical low-cost exposure to non-U.S. developed markets, differing primarily in index provider and portfolio depth.

These exchange-traded funds serve as core international building blocks for investors seeking geographic diversification. By excluding U.S. stocks, they allow for precise control over domestic versus international allocations. While their portfolios overlap significantly, their underlying benchmarks and total number of securities provide slight variations in market coverage that may appeal to different types of investors.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

Both international funds are among the most affordable options on the market, each carrying a low 0.03% expense ratio. The dividend yield difference is minimal, though the Schwab fund has historically offered a slightly higher payout. These low costs ensure that a high percentage of the underlying international dividends and capital appreciation reach the investor.

Performance & risk comparison

What's inside

The Schwab fund tracks the FTSE Developed ex US Index, focusing on large- and mid-cap companies. Its sector exposure includes Financial Services 26%, Industrials 18%, and Technology 15%. Its largest positions include Samsung Electronics (KOSE:A005930) at 2.86%, ASML Holding (NASDAQ:ASML) at 2.35%, and SK Hynix (NASDAQ:SKHY) at 2.04%. The fund holds 1,490 securities. It was launched in 2009. Schwab International Equity ETF has paid $0.84 per share over the trailing 12 months, which on its recent ~$28.5 share price works out to a 3% yield.

The State Street fund tracks the S&P Developed Ex-U.S. BMI Index, providing broader reach with 2,436 holdings across similar markets. Its largest positions include Samsung Electronics at 2.48%, ASML Holding at 2.04%, and SK Hynix at 1.68%. Its sector weights are nearly identical, led by Financial Services 25%, Industrials 18%, and Technology 15%. It was launched in 2007. State Street SPDR Portfolio Developed World ex-US ETF has paid $1.52 per share over the trailing 12 months, which on its recent ~$52.1 share price works out to a 2.9% yield.

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Which looks like the better buy

International ETFs are becoming increasingly popular as U.S. investors look to diversify beyond U.S. large cap stocks.

International stocks have outperformed U.S. stocks in recent years and are expected to continue to beat U.S. large caps in the years ahead. An analysis by Vanguard released in July says that over the next 10 years, international equities will likely post higher returns than U.S. stocks.

A key difference between the two is that the State Street fund is more diversified, investing in the broad universe of international stocks, including small caps. The Schwab ETF sticks primarily to large and mid-cap international stocks, omitting small caps.

Returns have been fairly similar, both over the past 12 months and across longer term time periods. Going forward, if Iʻm investing in one international ETF, Iʻm favoring the more diversified State Street fund. International small-caps have historically beaten international large caps over the long-term and are currently trading at extremely discounted levels.

So, over time, having that access to international small caps should help the performance of the State Street ETF.

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