Perspectives On Rotations Into Value, Small-Cap, Developed And Emerging Markets

Image Source: Pixabay After hearing for five years about the valuation bubbles that would cause QQQ and SPY to suffer imminent crashes, net cash flows from major institutions are starting to agree. Themes of rotation out of large cap US growth stocks and into small cap and/or value stocks and/or international stocks continue to dominate market commentary. The continuing waning of confidence in the strength of the US dollar has also been a major subtext in the 12-month outperformance by foreign stock benchmark index ETFs. Our last two ValuEngine weekly updates have covered these themes as well. Another oft-cited theme is that we are now in a stock-pickers market where earnings growth and surprises are still important but perhaps at more reasonable prices.Accordingly, we’ve run a screen among the ADRs we follow, to find the stocks rated 4 (Buy) and 5 (Strong Buy) with the highest projected one-year gains according to ValuEngine’s predictive model with three valuation criteria added to the search. All stocks passing the screen must have P/E (price-to-earnings) ratios below 21.0, pay a non-zero dividend, and be ranked in the top half of our universe according to our valuation model. The valuation model compares a stock’s current price to its fair-value price. The more or closer a stock’s current price is below its fair value, the higher its valuation rank.Here is a list of the Ticker Symbols with Company Names and corporate descriptions that passed the screen.EGO (Eldorado Gold Corp.): A Canadian-based gold and base metals producer with operations and development projects in Canada, Turkey, and Greece, focused on expanding production through projects like Skouries.BVN (Compañía de Minas Buenaventura SAA): A Peru-based precious metals producer engaged in the exploration, extraction, and smelting of gold, silver, and polymetallic minerals, transitioning toward a free cash flow-focused miner.ORLA (Orla Mining Ltd.): A Canadian mineral exploration company focused on developing gold and silver projects in the Americas, with primary operations including Camino Rojo in Mexico and Cerro Quema in Panama.ITUB (Itaú Unibanco Holding S.A.): A leading Brazilian financial institution providing banking products and services, including retail and wholesale banking, insurance, and credit, primarily in Brazil and Latin America.BCS (Barclays PLC): A UK-based universal bank providing retail banking, credit cards, corporate and investment banking, and wealth management services globally.B (Barrick Mining Corporation): A Canadian-headquartered global gold and copper mining company with a portfolio of tier-one assets in 18 countries, operating under this single-letter ticker as of May 2025.UBS (UBS Group AG): A Swiss multinational investment bank and the world's largest private bank. It provides global wealth management, asset management, and investment banking services to private, institutional, and corporate clients. INTR (Inter & Co, Inc.): A Brazil-based company that operates a digital multi-service bank and a super-app ("Inter") offering banking, investments, insurance, and shopping services.GTX (Garrett Motion Inc.): A Switzerland-based technology leader designing and manufacturing turbochargers and electric-boosting technologies for the automotive industry.SUBCY (Subsea 7 S.A.): An engineering and construction contractor for the offshore energy industry incorporated in Luxembourg. Subsea 7 specializes in seabed-to-surface projects including Subsea, Umbilical, Riser, and Flowline (SURF) systems.ADNT (Adient plc): An Ireland-incorporated global leader in automotive seating systems, designing and manufacturing complete seat assemblies, mechanisms, and foam for major automakers.PAGS (PagSeguro Digital Ltd.): A Brazilian financial technology company providing an end-to-end digital ecosystem for merchants and consumers, including payment processing and digital banking (PagBank).AER (AerCap Holdings N.V.): Incorporated in Ireland, AerCap Holdings is the world's largest owner of commercial aircraft, specializing in leasing, financing, and management of aircraft, engines, and helicopters.AMX (América Móvil, SAB de CV): A leading telecom carrier in Latin America, providing wireless voice, data, fixed-line, and broadband services.OMAB (Grupo Aeroportuario del Centro Norte, SAB de CV): A Mexican company that operates 13 international airports in central and northern Mexico, including the Monterrey airport. XP (XP Inc.): A leading Brazilian technology-driven financial services platform. It provides a wide range of products including brokerage, fixed income, mutual funds, and wealth management through brands like XP, Rico, and Clear.EDU (New Oriental Education & Technology Group Inc.): The largest comprehensive private educational service provider in China. It offers programs such as test preparation (TOEFL, SAT, GRE), K-12 tutoring, and overseas study consulting, while also operating the East Buy e-commerce platform.SID (Companhia Siderúrgica Nacional): One of the largest fully integrated steel producers in Brazil and Latin America. It operates across five core sectors: steel, mining (iron ore), logistics (railways and ports), cement, and renewable energy.APTV (Aptiv PLC): A Swiss-based global industrial technology company that provides hardware and software solutions for the automotive and commercial vehicle markets. It focuses on vehicle electrical architecture, active safety, and autonomous driving technologies.MGA (Magna International Inc.): A major Canadian mobility technology company and one of the world's largest automotive parts suppliers. It manufactures automotive systems, assemblies, and components for leading global automakers and provides complete vehicle engineering.The following chart shows the ranking and screening criteria for each stock selected.RankTicker Company NameVE RatingOne Year ForecastValuation RankP/E RatioMarket Cap ($Bil)Country CodeSector Name1EGOELDORADO GOLD521.01%8116.77.4CANBasic Materials2BVNBUENAVENTUR-ADR519.80%5416.78.9PERBasic Materials3ORLAORLA MINING LTD519.15%7016.75.0CANBasic Materials4ITUBBANCO ITAU -ADR517.76%6712.596.1BRAFinance5BCSBARCLAY PLC-ADR517.50%6211.188.3GBRFinance6BBARRICK MINING517.08%5216.774.0CANBasic Materials7UBSUBS GROUP AG514.97%8316.7136.7CHEFinance8INTRINTER&CO INC514.96%5516.73.8BRAFinance9GTXGARRETT MOTION514.89%5212.53.6CHEAuto-Tires-Trucks10SUBCYSUBSEA 7 SA514.70%5316.77.3LUXOils-Energy11ADNTADIENT PLC514.24%6312.52.0IRLAuto-Tires-Trucks12PAGSPAGSEGURO DIGTL513.98%877.13.5BRABusiness Services13AERAERCAP HLDGS NV513.70%5710.026.9IRLTransportation14AMXAMER MOVIL SAB513.53%5414.364.2MEXComputer and Technology15OMABGRUPO AEROP-ADS513.45%5220.05.1MEXTransportation16XPXP INC-A512.98%6711.110.0BRAFinance17EDUNEW ORIENTAL ED412.59%7720.09.8CHNConsumer Discretionary18SIDCIA SIDERUR-ADR412.08%6812.52.5BRABasic Materials19APTVAPTIV HLDS LTD411.91%7810.017.2CHEAuto-Tires-Trucks20MGAMAGNA INTL CL A411.52%5510.014.8CANAuto-Tires-TrucksFrom a country-of-incorporation perspective, Canada and Brazil lead the way with 4 companies apiece on this list. Canada claims three of the top six, all mining company stocks. The fourth Canadian stock ranked at #20, is Magna International. It is noteworthy as having the lowest price standard deviation and highest and most consistent dividend paying history of the group. Brazil’s Banco Itau currently has the highest dividend yield at more than 7 percent, but the dividend comes with three caveats. ITAU pays monthly but has lowered and even skipped dividend payments in the past making it a less certain dividend play than MGA. Also be aware that Brazil has a dividend withholding tax for foreign investors. There are six companies from the European Union led by three from Switzerland with country code CHE. In addition to Brazil, the emerging markets are represented by stocks from three other countries: Mexico, Peru, and China. Given the historic price jumps in metals in all categories, especially precious metals, it is probably not surprising that five of the top 20 stocks are in the mining industry. There are also five stocks in the finance sector but with a definite dichotomy. Three stocks, ITAU, UBS and Barclays PLC (BCS) all represent major international banks that have fallen under scrutiny in recent years. The other two, Inter & Co. (INTR) and XP (XP) are financial technology companies serving the sector. While the bank stocks have generous dividend yields, the fintech companies pay zero dividends but have higher growth potential. Additionally, PagSeguro Digital Ltd (PAGS), although classified here as Business Services, derives the lion’s share of its revenues from fintech. The third sector well represented here is Autos-Tires & Trucks with four companies: Garrett Motion Inc. (GTX); Adient PLC (ADNT); Aptiv Holdings Ltd. (APTV); and Magna International (MGA). Among the four, only Adient focuses on actually manufacturing equipment, the other three supply technology utilized by auto and auto equipment manufacturers. In terms of valuation, the P/E ratio, and ValuEngine’s Valuation model both consider PAGS the most undervalued, ranking 87th in valuation and with a P/E ratio of just 7.1. The next highest undervalued ranking given fair value is UBS while the second lowest P/E ratio belongs to MGA. In terms of market capitalization, only the three banks would be considered large cap by US standards. Barrick Mining (B) and América Móvil, SAB de CV (AMX) are equivalent to midcap size, and the others would fit into global small-cap value. One limitation of ValuEngine in the international space is that we cover only those companies with ADRs listed in the US. Most of the ETFs in the international space hold foreign-listed ordinary shares, not ADRs. Therefore, ETFs are a more efficient way to access a broader swath of these markets. In terms of targeting international small cap value. the following table analyzes the only four ETFs focused on international or global small-cap value that have been in existence for at least three years according to ETFdb.com.SymbolNameAssets ($Bil)YTD Price Change1 Year Returns3 Year Returns 1 Year Fund FlowsExpense RatioDiv. Yield %AVDVAvantis International Small Cap Value ETF17.413.17%63.01%26.09% $ 5,396.55 0.36%2.7%DISVDimensional International Small Cap Value ETF4.511.68%57.63%24.34% $ 824.880.42%2.4%ISVLiShares International Small Cap Value Factor ETF0.110.11%51.10%21.90% $ 74.220.31%2.4%VBRVanguard Small Cap Value ETF34.79.51%16.38%12.55% $ (1,315.66)0.05%1.8%Let’s take a quick look at what these ETFs are designed to do.Avantis International Small Cap Value ETF (AVDV): Actively managed, AVDV uses a systematic approach to invest in non-U.S. small-cap companies with high profitability and low price-to-book (value) ratios. It aims for long-term capital appreciation by filtering for strong fundamentals rather than just tracking a specific index.Dimensional International Small Cap Value ETF (DISV): This ETF is actively managed, utilizing a proprietary, disciplined methodology to purchase small-cap, non-U.S. companies in developed markets. It focuses heavily on low valuation (value) and higher profitability, often avoiding "value traps".iShares International Small Cap Value Factor ETF (ISCF): A passively managed, index-tracking fund that follows an index of international small-cap stocks. It uses an optimization process to select and weight securities to maximize exposure to four factors: value, quality, momentum, and low volatility.Vanguard Small Cap Value ETF (VBR): This is a passively managed ETF designed to track the performance of the FTSE Global Small Cap ex-US Index. It aims to hold a representative sample of securities to replicate the target index, covering a broad range of international small-cap stocks.Those of us used to seeing Vanguard dominate many ETF categories are in for a surprise. The unsurprising facts are that Vanguard is the leader by 50% in Assets Under Management and has the lowest expense ratio by a wide margin. However, for the past 12 months, those flows have continued to head in the wrong direction. For one of the hottest small but targeted sections of the market, Vanguard has endured negative net cash flows while the other three ETFs have enjoyed net inflows. The real story is the Avantis International Small Cap ETF (AVDV). Its net inflows during the past 12 months represent 33% of its total assets. A quick look at returns for year-to-date, 1-year and 3-years make a clear case of why this is happening. The active methodology has been working very well, particularly much better than the two passive funds in this category. AVDV was performing very well when most international funds and most value-based funds were roasted by the S&P 500. Now that its style and markets are in favor, the fund’s managers have been knocking the cover off the ball. As icing on the cake, AVDV also offers the highest dividend yield among the quartet.There is another ETF we consider very germane to this analysis. One ETF that invests in the securities of foreign companies that we are able to cover is the AdvisorShares Dorsey Wright ADR ETF (AADR). It is an actively managed ETF that uses a technical, rules-based strategy to pick international stocks traded as American Depositary Receipts (ADRs). It employs Nasdaq Dorsey Wright’s proprietary relative strength methodology alongside fundamental screens to build a concentrated portfolio of about 50 stocks. It receives our highest rating of 5 (Strong Buy). All ten of its top ten holdings are also rated at 5 and 50% of its holdings are considered undervalued by our model.Turning back to stocks, we do not mean to imply that there is a shortage of US stocks that met the same criteria of the analytic table we used for ADRs. Here is a similar table for the top 10 US stocks that made the screen. Since all the corporate descriptions are in the ValuEngine reports and many are familiar names, we skip the company descriptions.#Ticker Company NameVE RatingOne Year ForecastValuation RankP/E RatioMarket CapPEGSector Name1SSRMSSR MINING INC518.34%5114.35.40.17Basic Materials2WTWISDOMTREE INC515.45%6220.02.30.67Finance3AESAES CORP514.70%707.711.60.64Utilities4ARRYARRAY TECH INC514.15%6420.01.80.53Oils-Energy5FSLRFIRST SOLAR INC513.06%6414.324.30.25Oils-Energy6THCTENET HEALTH512.93%6912.517.02.28Medical7HALOHALOZYME THERA512.67%5412.59.40.53Medical8EXELEXELIXIS INC410.88%7216.711.50.84Medical9FHIFEDERATED HERME48.88%5811.14.28.58Finance10LDOSLEIDOS HOLDINGS48.31%5816.724.93.50Computer and Technology11MDPEDIATRIX MED47.68%5211.11.85.89Medical12PBIPITNEY BOWES IN47.02%688.31.71.01Computer and Technology13LCLENDINGCLUB CP46.54%5714.32.00.33Finance14LVSLAS VEGAS SANDS46.12%5720.038.64.62Consumer Discretionary15TCBITEXAS CAP BCSHS45.96%6014.34.81.44Finance16URBNURBAN OUTFITTER45.70%6114.36.31.28Retail-Wholesale17INDBINDEP BK MASS45.66%5414.34.20.51Finance18EBAYEBAY INC45.00%5120.039.51.96Retail-Wholesale19DELLDELL TECHNOLOGS44.94%6814.383.50.91Computer and Technology20GLGLOBE LIFE INC44.03%5910.011.32.35FinanceA mining company, Colorado-based SSR (SSRM) once again takes the top spot with the highest one-year forecast. However, it is the only US mining company that fits all the criteria. It does have an impressive PEG ratio of 0.17. More similar to the global distribution, five finance companies make the list led by ETF provider Wisdom Tree (WT). Two of the top five companies are alternative energy providers, Array Technologies (ARRY) and First Solar (FSLR). Four health care companies make this top 20 list including hospital and urgent care provider Tenet Health (THC), biotechnology companies Halozyme Thera (HALO) and Exelixis (EXEL) along with Pediatrix (MD). For bargain hunters, utility AES Corp. (AES) has the lowest P/E ratio and the second highest valuation rank to go along with the third highest one-year forecast. Meanwhile, Leidos Holdings (LDOS), a technology solutions provider to the defense industry is the highest ranks of the three tech companies in the table.To sum this analysis up, the top-heavy tech bubble seems to be thinning out gradually more than it is crashing so far. This may be the best-case scenario for investment managers, but no one knows how long this can last without either causing a 20% decline or a reversal back to mega-cap tech dominance. For the time being, the trend may be here for a while. With many of the top QQQ stocks being used as sources of funds for rotations into value, small cap, and international stocks along with commodity ETPs, this seven-or-more month trend has continued to pick up steam in recent weeks. Meanwhile, Brazil and Canada seem to be taking leadership on affordable opportunities outside the United States. The Avantis (AVSV) vs. Vanguard (VSS) comparison could be a case study on how active management can add value in less efficient global markets. With the US earnings season half over, analysts may be able to take a breather soon to look at the bigger picture portended by these trends. Could we see an active management renaissance? Stay tuned.More By This Author:Rotation And International Rotation Take Center Stage - Some Ideas To PonderJanuary Ends With Perceived Renewed Stability For The US Dollar "Sell America" - A Trading Trend That Took Center Stage This Week