Fidelity, T. Rowe Price, JPMAM Active International ETFs Outperform EFA

Actively managed international equity ETFs, including Fidelity Enhanced International ETF (FENI), T. Rowe Price International Equity ETF (TOUS), and JPMorgan International Research Enhanced Equity ETF (JIRE), have demonstrably outperformed the passive MSCI EAFE Index (EFA) year-to-date through July 10. While EFA gained 20.4%, TOUS surged 24.1%, FENI 23.4%, and JIRE 21.5%, with TOUS and FENI also outpacing EFA by over 300 basis points over a one-year period. Despite varying expense ratios, these results highlight the potential for rigorous stock selection and active management to generate significant alpha in international developed markets, offering a compelling alternative to broad benchmark exposure.

Analysis

Several actively managed international equity ETFs have demonstrated significant outperformance against the passive MSCI EAFE Index benchmark, as tracked by EFA. Year-to-date through July 10, the T. Rowe Price International Equity ETF (TOUS) returned 24.1%, the Fidelity Enhanced International ETF (FENI) returned 23.4%, and the JPMorgan International Research Enhanced Equity ETF (JIRE) returned 21.5%, all outpacing EFA's 20.4% gain. This trend is reinforced over a one-year period, where TOUS and FENI have each outperformed EFA by over 300 basis points. A key differentiator is cost: TOUS carries the highest expense ratio at 50 basis points, while FENI (29 bps) and JIRE (24 bps) offer their outperformance at a lower cost than the passive EFA itself (32 bps). The funds employ distinct active strategies, with TOUS using a bottom-up fundamental approach, FENI seeking to enhance a benchmark-like portfolio, and JIRE using a research-driven model to modestly overweight undervalued securities. This collective performance supports the thesis that rigorous stock selection and active management can generate alpha in developed international markets.

Key Decisions for Investors

• Investors seeking exposure to developed international markets should evaluate these actively managed ETFs as potential alpha-generating alternatives to passive benchmark funds like EFA.
• A key consideration is the cost-versus-performance trade-off, weighing the top-performing TOUS with its high 50 basis point fee against FENI and JIRE, which have also outperformed while charging less than the passive EFA benchmark.
• Portfolio allocation should consider the distinct management styles: TOUS for a fundamental, bottom-up stock selection approach, versus FENI and JIRE for strategies designed to outperform while maintaining risk characteristics similar to the index.