Navigating Geopolitical Crosswinds with DINT: The Case for Non-U.S. Equity Resilience

Geopolitical tensions are reshaping global trade dynamics, with the U.S. increasingly leveraging tariffs to pressure allies and adversaries alike. Recent threats to impose sanctions on India and China for purchasing Russian oil underscore the fragility of cross-border economic ties. In this volatile environment, investors seeking exposure to non-U.S. equities must prioritize portfolios that blend geographic diversification with sector resilience. Enter the Davis Select International ETF (DINT), a fund strategically positioned to capitalize on shifting trade landscapes while minimizing reliance on the U.S. equity megacap tech giants.

Portfolio Construction: A Contrarian Bet on Value and Emerging Markets

DINT's appeal lies in its deliberate deviation from traditional benchmarks like the MSCI ACWI ex US. As of September 2024, its sector allocations heavily favor Consumer Discretionary (41%) and Financials (31.7%), sectors that have historically thrived in volatile markets due to their defensive characteristics and lower correlation to tech-driven U.S. equities. This contrasts starkly with the benchmark's tech-heavy weighting (13% Information Technology vs. DINT's 4.9%).

Geographically, DINT tilts decisively toward emerging markets (45.7%), with China alone representing over a quarter of its holdings. While this concentration raises risk concerns, it also aligns with the fund's thesis of exploiting valuation gaps: its holdings are 41% cheaper than the MSCI ACWI ex US but boast higher earnings growth (16.5% vs. 12.7%).

Geopolitical Volatility: A Catalyst for Non-U.S. Equity Outperformance

The U.S. tariff threats targeting Russia's oil buyers—primarily China and India—create both risks and opportunities. While direct sanctions on these economies could disrupt trade flows, DINT's diversified exposure to Europe (54.3% of developed markets) and Japan (4.5%) mitigates overreliance on Asia. For example:
- Europe's fiscal stimulus (e.g., Germany's infrastructure spending) and Japan's monetary easing provide tailwinds for DINT's financials-heavy portfolio.
- Consumer Discretionary holdings like Meituan (7.95%) in China and Trip.com Group (4.39%) in South Korea benefit from pent-up demand in emerging markets, even amid trade friction.

Historically, DINT outperformed its benchmark during prior trade disputes, thanks to its focus on undervalued, cash-rich firms. In 2024, its YTD return of 14.34% versus the MSCI ACWI ex US's 11.22% suggests this pattern may persist.

Risks and Considerations

• Emerging Market Volatility: China's 26.5% weight exposes DINT to policy shifts (e.g., regulatory crackdowns) and currency fluctuations.
• Sector Concentration: Overweighting financials and consumer discretionary may amplify losses in a prolonged economic slowdown.

Investment Thesis: DINT as a Geopolitical Hedge

For investors seeking non-U.S. exposure without betting on tech megacaps, DINT offers a compelling alternative. Its value orientation and diversified geographic footprint—spanning European banks (e.g., Danske Bank, 6.51%), Asian insurers (Ping An Insurance, 5.59%), and global e-commerce firms—position it to navigate trade wars. While no fund is immune to macro risks, DINT's valuation discount and earnings growth suggest it could outperform in a scenario where U.S. equities falter under tariff-driven uncertainty.

Final Take: Allocate Strategically, Monitor Closely

Investors should consider a modest overweight in DINT as part of a diversified international equity allocation. Pair it with quality U.S. large-cap value stocks and private credit instruments to balance risk. Keep a close eye on DINT's Q2 2025 rebalancing—if emerging markets remain undervalued relative to developed peers, this fund could prove a durable hedge against geopolitical headwinds.

In a world where trade wars are becoming the new normal, DINT's contrarian strategy may just be the right prescription for investors seeking resilience without sacrificing growth.