International Equities: Follow The Transformers
Advisors Asset Management, Inc.
A Financial Professional's Destination for Investment Solutions
A laggard for over a decade, investor skittishness towards international equities has been apparent. While economic growth in Europe and China has been slow, recent government stimulus efforts are starting to have a positive effect. This opens a door for international equities and investors seeking exposure may want to consider a portfolio taking an innovation-driven, global approach such as the AAM Transformers ETF (TRFM).
Key Takeaways
Ready to Shine or Just a Layover?
Historically, after the S&P 500 index has experienced a year of 50 new highs, an accolade reached in 2024, the following year’s returns have been -2.9%, on average (Source: Ned Davis, 12/31/2024). A rotation toward international may be underway and its length may potentially be fundamentally driven. Meanwhile, macroeconomic sentiment has appeared to have improved for certain regions:
? Europe: Germany’s key economic sentiment indicator saw its largest increase in 2 years ahead of the recent election.1 The European Central Bank (ECB) has cut interest rates for the fifth straight time in March, loosening economic conditions for the Eurozone after two years of relatively stagnant growth and industrial production.2 Meanwhile, the IMF has forecasted the U.K. to have the third strongest real GDP growth for 2025, just short of the U.S. and Canada.3
China: The MSCI China index had an average selloff of -18.5% from 2021 through 2023 due to regulatory crackdowns and a lingering real estate
crisis (Source: MSCI). Today a rebound has occurred on the back of two major catalysts. In September 2024, the People’s Bank of China (PBOC) rolled out a significant stimulus package by lowering key interest rates while injecting approximately $137Bn of liquidity into the financial system.4 More recently, the rise of Deep Seek saw more than $1Tn in U.S. stock market, market capitalization, wiped out in one day.5
Over the past five Fed rate cutting cycles since 1990, once the Fed has cut interest rates three times, the average global short-term interest rate (ex. U.S.) has typically fallen by 2% over the next 12 months (Source: Ned Davis Research, 2025). This is currently where the US easing cycle sits and may help drive the macro case for international equities further.
Hidden Gems or Just Another Souvenir?
The relative attractiveness of U.S. equities and their stretched valuations can be broken down into two key reasons:
1. Elevated economic growth where the U.S. continues to have the largest real GDP per capita of all G7 nations, plus China.
2. Operating margins of S&P 500 companies have been well above 11% over 8 consecutive quarters with an earnings growth rate that is expected to have its higher year-over-year growth rate since 4Q2021 (Source: S&P DJI, 2/26/25).
A focus on international firms that have elevated expected growth driven by a commitment to growing capital expenditures (capex) are likely to help drive future returns on invested capital.6 Most of this capex is well spent on research and development (R&D) in an effort to drive future productivity. COVID-19 started a global wave of innovation investing, while investments in artificial intelligence will likely continue to be the driver of R&D spending (Illustration 2).
TRFM: An Innovation-Driven Approach to Global Equities
AAM Transformers ETF (TRFM) seeks to take a globally agnostic and fundamentally driven approach to thematic growth investing. TRFM tracks the Pence Transformers Index, an index that screens the cohort of U.S.-listed companies, regardless of domicile. The index selection process considers fundamentals such as capital expenditures (capex), research and development spend (R&D), and forward-looking revenue growth. TRFM caps its international equity exposure at 25% upon a rebalance. TRFM’s international holdings are fundamentally attractive relative to its US holdings. This segment has had larger trailing sales growth over the last 12 months with higher forward EPS growth expectations. This demonstrates how the strategy has successfully isolated profitable, non-U.S. stocks.
Conclusion
An allocation to TRFM isn’t just a tick on the portfolio diversification box. It can potentially serve as a thoughtful approach to global growth equity investing.
领英推荐
TRFM: Embrace the Power of Disruptive Innovation
As innovation can come from select aspects of our economy, investors require more precise tools to unlock future growth opportunities. TRFM offers a focused and specific approach in its selection process in seeking to uncover the most promising, transformative companies. The culmination of the investment process is the potential to gain exposure to companies prior to or during their strongest periods of growth.
For more information, please contact your financial professional or visit www.aamlive.com/etf.
? Website
1. Martinez, Maria (2025, February 18) German investor morale improves ahead of election.
2. Kiderlin, Sophie (2025, March 6) European Central Bank cuts rates again, says policy is becoming ‘meaningfully less restrictive.
3. Harari, Daniel (2025, February 13) GDP international comparisons: Economic indicators.
4. Interesse, Giulia (2024, October 09) Decoding China’s Recent Economic Stimulus Package: What Investors Need to Know.
5. Sor, Jennifer (2025, January 28) Deep Seek tech wipeout erases more than $1 trillion in market cap as AI panic grips Wall Street.
6. Nichols, Chandler (2024, November 11) AAM Viewpoints — Tax-Efficient Income and the Appeal of Thematic Growth as we Head into Year End.
DISCLOSURES
Click for TRFM Prospectus
This publication is provided for information purposes only. Unless otherwise stated, all information and opinions contained in this publication were produced by Advisors Asset Management, Inc. (AAM) and other sources believed by AAM to be accurate and reliable. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and best interests. All expressions of opinions are subject to change without notice.
Past performance does not guarantee future results.
Investing involves risk, including the possible loss of principal. An investor should consider the investment objectives, risks, and charges and expenses of the fund carefully before investing. The prospectus should be read carefully before investing. Shares of any ETF are bought and sold at market price (not NAV) and may trade at a discount or premium to NAV. Shares are not individually redeemable from the Fund and may be only be acquired or redeemed from the fund in creation units. Brokerage commissions will reduce returns. Diversification does not assure a profit or protect against a loss in a declining market.
INDEX DEFINITIONS (Note: It is not possible to invest directly in an index. Indices do not include cash.) Pence Transformers Index (PENCETI) is a rules-based index that measures the performance of U.S.-listed common equity securities, including American Depositary Receipts (“ADRs”) for foreign securities, of companies poised to benefit from a significant disruption and/or transformation of consumer behavior and technological innovation. Examples of significant disruptions and/or transformation of consumer behavior and technological innovation include, but are not limited to, (i) advancements in autonomous driving capabilities and electric vehicle technology disrupting the automobile manufacturers and trucking sub-industries; (ii) changes in consumer behavior shifting retail sales from brick and mortar businesses to digital channels transforming the internet and digital marketing retail sub-industry; (iii) recent developments in cellular data speeds and improvements in mobile technologies disrupting the interactive media and services sub-industry; and (iv) new technologies that provide carbon offsets for existing business models or the development of greener alternatives to existing energy production transforming the renewable electricity producers sub-industry. The Index is reconstituted quarterly. S&P 500 Index is an unmanaged capitalization-weighted index (weighted by the market value of the companies) of 500 stocks listed on various exchanges. It is not possible to invest directly in an index.
Nothing contained herein constitutes investment, legal, tax or other advice. This should not be construed as a solicitation. Not FDIC ? No Bank Guarantee ? May Lose Value
AAM ETFs are distributed by Quasar Distributors, LLC. Quasar and AAM are not affiliated.
?2025 Advisors Asset Management, Inc.
Advisors Asset Management, Inc. (AAM) is an SEC-registered investment advisor and member FINRA/SIPC. Registration does not imply a certain level of skill or training.
18925 Base Camp Road ? Monument, CO 80132 ? www.aamlive.com CRN: 2025-0310-12391 R