The biggest winners of all in the overseas push—and they have been since last year—are the hedged equity ETFs, targeting markets such as Japan and Europe. As the dollar strengthened and central banks in Europe and Japan have become the forefront of stimulus efforts, the hedged international equity approach has been the biggest ETF asset winner.
"Europe and Japan stock markets in particular are expected to continue to benefit from their central banks' largess. They also look attractive from the valuation perspective, as U.S. stock valuations are getting stretched after more than six years of bull run," said Neena Mishra, director of ETF Research at Zacks Investment Research.
WisdomTree Europe Hedged Equity Fund (HEDJ) took in near-$3 billion in April flows, while more than $4 billion flowed into MSCI EAFE Hedged Equity ETF (DBEF).
"Currency hedging has been the biggest story in the ETF world this year as monetary policy divergence sent the U.S. dollar soaring against other currencies," Mishra said. She thinks inflows into currency hedged ETFs may continue in the coming months, though not at the pace seen in the first quarter.
Mishra said that data should not be interpreted as a sign investors are bailing on U.S. stocks wholesale, but that more investors are finally getting the message about international diversification. U.S. stocks may continue to grind higher, but the easy money in U.S. stocks has already been made, and returns this year will most likely be lackluster, she said. So investors have been looking for better opportunities abroad.