Principal International Equity ETF (PIEQ)

The Principal International Equity ETF (ticker PIEQ) is an exchange-traded fund that holds the stocks of companies in foreign developed and emerging markets, tracking a broad international index to offer investors equity exposure outside the United States without picking individual foreign stocks.

Why own stocks outside your own country?

The US stock market is large and liquid, home to many of the world’s best companies. Yet it represents only roughly 60% of global stock-market value on any given day. Japan, the United Kingdom, Switzerland, Australia, France, Germany, Canada, and dozens of other countries have their own stock markets with profitable, well-run companies. By owning only US stocks, an investor is betting the US will outperform every other market for years on end — a strong assertion that carries risk. PIEQ offers a way to own a slice of the world’s companies without making that bet. It also provides a hedge: if the US dollar weakens, foreign stocks’ dollar value rises; if US growth slows but international growth accelerates, foreign stocks may outperform US ones.

What countries and companies does PIEQ own?

PIEQ typically tracks an index of stocks in developed and emerging markets — think Canada, Japan, the UK, France, Australia, South Korea, Taiwan, India, Brazil, Mexico, and dozens of others. The exact weighting depends on the index it follows, but generally larger, more developed economies (Japan, the UK, continental Europe) carry more weight than smaller emerging ones. Within those countries, the fund holds the largest publicly traded companies: banks, pharmaceutical firms, automotive manufacturers, luxury-goods houses, industrials, energy companies, and technology firms. The holdings are genuinely diverse across geographies, sectors, and company sizes.

An emerging market stock is simply the equity of a company in a country where the economy is still developing or where equity-market infrastructure is less mature than in the US, Europe, or Japan. Emerging markets offer higher growth rates in theory but also higher volatility, regulatory uncertainty, and currency risk. A developed-markets stock is from a country with a stable, mature economy and strong rule of law. PIEQ blends both, which makes sense: you want some growth exposure (emerging markets) but also stability (developed markets).

How does currency risk work in an international fund?

This is the crucial lever PIEQ investors must understand. If PIEQ holds 100 million pounds sterling in British stocks and the pound weakens against the dollar, the dollar value of those holdings drops even if the stock prices themselves are unchanged in pounds. Conversely, pound strength lifts the fund’s returns. Similar dynamics apply to Japanese yen, euros, Canadian dollars, and all the other currencies in which PIEQ’s holdings trade. Over very long periods, currency movements average out and do not predict future returns; over any given year or quarter, they can swing PIEQ’s return by several percentage points.

Some international funds hedge currency exposure — they buy financial instruments that offset currency moves — so returns reflect the local stock prices without currency noise. Other funds, including many versions of PIEQ, do not hedge. An investor should check the fund’s prospectus to confirm whether currency is hedged. Unhedged funds offer true international diversification, including currency bets; hedged funds isolate pure stock-market performance.

How do international stocks perform relative to the US market?

This is the question that drives every decision to buy or avoid PIEQ. The historical record shows no consistent winner. Periods of outperformance by US stocks (the last decade, roughly) are followed by periods when international stocks lead (the 1980s and 1990s). Valuation multiples shift — sometimes US stocks trade expensively while international stocks are cheap, or vice versa. Interest-rate differentials, currency trends, commodity prices, and geopolitical events all push performance around. The practical takeaway is that nobody can reliably predict which region will outperform next; diversifying across US and non-US stocks reduces the risk of getting left behind if any single region rallies.

What are the specific risks?

Currency volatility is the first risk: your returns could be positive in local currency but negative in dollars if the dollar strengthens. Emerging-market political risk is the second: some countries have unstable governments, changing regulatory environments, or capital controls that can trap investors’ money. Smaller market liquidity is the third: if you own stocks in a smaller emerging market and you want to exit quickly, you might face wide bid-ask spreads. Sector concentration is the fourth: some emerging markets are heavily weighted toward energy or commodities, which can boom or bust based on commodity prices. And the perennial equity risk remains: stock prices fall when economies weaken, profits disappoint, or risk appetite evaporates.

How to compare PIEQ to other international funds?

Start with the index it tracks. If PIEQ follows the MSCI EAFE Index (which typically excludes emerging markets) versus the MSCI All Country World Index ex-USA (which includes them), the composition and risk profile differ. Check the expense ratio — international funds vary widely in cost, and that difference compounds over decades. Look at the top-10 holdings: do they match your view of which countries and companies will perform? Check the emerging-market weighting (0%, 20%, 40%?), the currency-hedging policy, and the geographic breakdown. A fund weighted toward Europe, Asia, and Latin America offers different exposure than one weighted toward just developed markets. None is obviously “better” — it depends on whether you want more growth exposure (tilt toward emerging markets) or more stability (tilt toward developed markets), and your views on currency and geopolitics.

When does PIEQ make sense in a portfolio?

PIEQ works as part of a diversified equity allocation. A common approach is to own 70% US equities and 30% international, though the split depends on personal preference and beliefs about future returns. PIEQ is most suitable for long-term investors (10+ years) who can ride out periods when international stocks lag the US market, knowing that relative performance swings over decades. It is less suitable for those who cannot tolerate currency volatility, or who have strong convictions that the US will outperform permanently — in which case owning only US stocks is more honest than owning PIEQ as a grudging compromise.