cancel
Showing results for 
Search instead for 
Did you mean: 
     
Highlighted
Contributor ○

Re: Value of International and Emerging Markets in Asset Allocation? Does it help/ hurt?


I’ve been mostly U.S. centric for the 37 years I’ve been investing.  Certainly don’t consider it recency bias, but rather an understanding that U.S. multinational firms get approximately 40% of their revenues from international markets.  I love traveling outside the U.S. and do so at least twice per year.  But i don’t think it is necessary for me to invest internationally unless my trusted PMs (David Giroux and Don Kilbride) do so.
@Win1177 wrote:

Great post Academic! And thanks to everyone else for their comments. I agree with Academic, it seems like people who are avoiding International and Emerging Markets may be displaying “recency bias”, buying what has outperformed in the recent past. I have traditionally always held positions in Foreign/ EM, and it seems like the last 10 years or so I have been adding periodically to them, due to domestic outperformance. Then we get this Covid19 selloff, and my foreign/ EM are down MORE than my domestic. 

I’m now reviewing my portfolio to gradually rebalance it, and I am again “low” on Foreign/ EM equity. I am going to start adding slowly to these areas, as I believe long term in the concept of “reversion to the mean”. I’m NOT going as high as 30-50% International/ EM, probably staying closer to 15% International and 4% Emerging markets. My International includes a 4% mid/ small component, as they tend to perform differently and (I believe) offer some degree of diversification benefit. 


 

Highlighted
Contributor ○

Re: Value of International and Emerging Markets in Asset Allocation? Does it help/ hurt?

Although I don’t do it or recommend it, up to 20% of your equities in international is reasonable.  Would certainly not go more than 20%.  Bogle would concur with what I’ve stated.
@Academic wrote:

Win, I agree a 15-20% foreign allocation is entirely reasonable. 

I've had a roughly 50% foreign allocation for the past few years. So far that has hurt results, not helped. 

But I've learned to be patient. Over the long haul my approach has worked well for me. 

BTW I should add that I have a roughly 50% total allocation to stocks, i.e. I have roughly 25% of total portfolio in foreign stocks and roughly 25% in US stocks. 


 

Highlighted
Frequent Contributor

Re: Value of International and Emerging Markets in Asset Allocation? Does it help/ hurt?

CEGibbs,

The majority of my holdings are also large cap “multinationals” (MSFT, AAPL, PG, CL, pharmacy stocks, WMT, XOM, etc.) that get a significant portion of their income/ revenues from overseas. Usually at least 20%, and often above 40%. Hence, that is why I shoot for around 20% total of my equity in foreign/ EM. I figure the “real” foreign/ EM exposure is closer to at least 30% foreign, maybe higher. 

Win
0 Kudos
Highlighted
Contributor ○○○

Re: Value of International and Emerging Markets in Asset Allocation? Does it help/ hurt?

 

Many large U.S. companies earn a significant amount of their revenues from other countries. Consequently, some investors have concluded they don't need to invest internationally. The U.S. has the largest economy and is home to many successful companies. However, avoiding foreign-domiciled companies narrows the opportunity set and introduces the risk of missing some potentially lucrative investments.

Highlighted
Participant ○○

Re: Value of International and Emerging Markets in Asset Allocation? Does it help/ hurt?

Some argue for the broadest diversification possible, but I would imagine there is a threshold beyond which risk adjusted returns don't show significant improvements. EM may offer covariance in less choppy times, but nothing diversifies away market risk. Re-balancing is often recommended if allocations have changed significantly. If you think the virus will impact EM significantly down the line, then reducing your exposure may make sense. I'd avoid credit risk in EM altogether.

0 Kudos
Highlighted
Contributor ○

Re: Value of International and Emerging Markets in Asset Allocation? Does it help/ hurt?


Hi Win,

What you stated makes sense to me.  You have a reasonable plan.....just need to stick with it.

@Win1177 wrote:

CEGibbs,

The majority of my holdings are also large cap “multinationals” (MSFT, AAPL, PG, CL, pharmacy stocks, WMT, XOM, etc.) that get a significant portion of their income/ revenues from overseas. Usually at least 20%, and often above 40%. Hence, that is why I shoot for around 20% total of my equity in foreign/ EM. I figure the “real” foreign/ EM exposure is closer to at least 30% foreign, maybe higher. 


 

0 Kudos
Highlighted
Participant ○○

Re: Value of International and Emerging Markets in Asset Allocation? Does it help/ hurt?

I often have seen people here recommend to me that all of my 30+ holdings could prety much be replicated with 3 or 4 mutual funds in a moderate portfolio, and that always seems to have included a certain percentage of foreign exposure for supposed good diversification.  AFAIK most balanced funds allocate at least some percentile in foreign equity.  I might have 10% in int'l stock/bond/debt funds -- in a 40/60 PF.  So...what would be "Different" now? 

0 Kudos
Highlighted
Frequent Contributor

Re: Value of International and Emerging Markets in Asset Allocation? Does it help/ hurt?


@PaulR888 wrote:

Hi Win ....    I am a Virgo who thrives on detail and structure.  I have traditionally always had int'l funds since my early jobs.  I have 23% Developed (LCV, LCG, MCG and SCB) and 8% EM (LCV, LCG (India) and MCB).  Maybe not better TR but returns come in at different times so give me more non-correlated returns.  I don't think the US companies I invest in would give me the same level of Mid and Sm cap international.  If we get a weakening USD, that will help foreign investments in local currency.  Also, have you seen the Gundlach chart of 4 major markets that he has shown several times?  Starts with Japan market going gangbusters in late '80s, recession in early '90s and after 30 years never got back to high.  Followed by Europe going gangbusters in late '90s, recession in early '00s and after 20 years never got back to high.  Followed by EM (China was world beater) then recession and never got back.  Finally, US ...  world beater up to 2019, now recession ....  do we get back to high and when?  Do other markets beat us back to their high?  


Same old, same old, when your portfolio lags for 10 years you have to go with 15-20 years. 

1995-2000 I invested almost all in US Tot index

Since 2000 best risk/reward funds. 

2000-2010 the only international was thru SGENX/SGIIX, the rest mostly US based stocks with FAIRX,OAKBX and smaller % in 2 others. Why SGENX? because of their managers knew how to find international stocks that still kept the portfolio risk/reward very good, who can forget their legendary manager Jean-Marie Eveillard.

Since 2011 mostly US-based stocks.  I prefer the US because if better risk-adjusted returns.  The SP500 gets 40% of its revenues from abroad and QQQ gets about 50% from abroad.

I've been reading for years now the EM is a great value.

The correlation of all stocks is high globally.

Gundlach has been talking about EM for years now.  Merriman has been talking about diversification for years and both were wrong,

(link) Jack Bogle: Follow these 4 investing rules—ignore the rest

1. Bogle doesn’t rebalance — if you must, once a year is enough.

2. Bogle doesn’t invest overseas — at least, not directly. (Many large U.S. companies derive 50 percent or more of their revenue from outside the United States, so buying a fund comprising the U.S. market de facto gives you exposure to international markets.)

3. To Bogle, diversification means bonds — and it doesn’t need to mean anything more than that.

4. Bogle believes that if you make the ‘simple’ portfolio choices, you’ll spend a lot less time worrying.

 

0 Kudos
Highlighted
Participant ○○○

Re: Value of International and Emerging Markets in Asset Allocation? Does it help/ hurt?


@Win1177 wrote:

I have traditionally tried to hold a percentage of my Equity allocation in International as well as Emerging Markets, believing that it offers some degree of benefit with diversification, etc. However, in the process of evaluating my portfolios recent performance, International and EM have performed AWFULLY during this Covid19 “selloff”. Some of my worst positions have been International/ EM mutual funds. Reading the article by John Reckenthaler this AM reinforces this view. Vanguard constantly tells me that I need to ADD additional International to my equities (30-50%!), but I’m really beginning to question this. 

Who else is still holding “positions” In International and Emerging Markets, what percentages, and why (or why not)???


I held int'l stocks for probably 25 years, as roughly 25% of my equity holdings. But I dumped them sometime last year.

The argument goes in circles, with no definitive winner, so I dumped them in the interest of having one less fund in my portfolio.

0 Kudos
Highlighted
Contributor ○○○

Re: Value of International and Emerging Markets in Asset Allocation? Does it help/ hurt?

Out of my five holdings, two have some foreign exposure, but to be honest I've not worried or thought about the percent.  They are both stock and bond funds; American Funds Capital Income Builder (CAIBX), classified as a World Allocation if I recall correctly; and Franklin Income (FKIQX), classified as a 30-50% equity fund.  Come to think of it, my utility fund might have a little bit of foreign, it is Franklin Utilities (FKUQX).  My two stocks are domestic, Coca-Cola and Wells Fargo.  

I don't think there are any significant advantages to having foreign exposure.  I've never followed or even been interested in Emerging Market investing, and if my holdings have any at all, I'm sure it's very small.  

I guess I just consider foreign stocks and domestic stocks as just "stocks".  I might be interested in buying a specific company for a specific reason (Nestle, for example, or Unilever), but I've never went out and hunted for a fund dedicated to overseas investing, and I've never tried to hold any specific percentages in overseas stocks and/or bonds.

Highlighted
Frequent Contributor

Re: Value of International and Emerging Markets in Asset Allocation? Does it help/ hurt?

Mlott1,

Interestingly, ONLY about 31% of Coca Cola’s sales come from North America, the rest is International and Bottling investments (19.9%), so one can argue that Coca- Cola is an “International company” with about 1/3 of sales in North America!

I hold a chunk of KO by the way (1200 shares), it’s one of my “probably never sell” stocks, as it has appreciated significantly since I bought it, and I would pay HUGE taxes. 

Win
0 Kudos
Highlighted
Contributor ○

Re: Value of International and Emerging Markets in Asset Allocation? Does it help/ hurt?


Very well stated by mlott1.  Completely agree with his thoughts.  Over 2/3 of Coca-Cola’s revenues come from outside North America.  Like mlott1, I’ve often considered buying Nestle and Unilever as international investments and would rather do that than own a solely international or emerging markets fund.  I let my two PMs who are more domesticity focused select how much exposer they want to internationally domiciled companies and to also be extremely selective when they do so rather than being forced to invest there by prospectus.
@mlott1 wrote:

Out of my five holdings, two have some foreign exposure, but to be honest I've not worried or thought about the percent.  They are both stock and bond funds; American Funds Capital Income Builder (CAIBX), classified as a World Allocation if I recall correctly; and Franklin Income (FKIQX), classified as a 30-50% equity fund.  Come to think of it, my utility fund might have a little bit of foreign, it is Franklin Utilities (FKUQX).  My two stocks are domestic, Coca-Cola and Wells Fargo.  

I don't think there are any significant advantages to having foreign exposure.  I've never followed or even been interested in Emerging Market investing, and if my holdings have any at all, I'm sure it's very small.  

I guess I just consider foreign stocks and domestic stocks as just "stocks".  I might be interested in buying a specific company for a specific reason (Nestle, for example, or Unilever), but I've never went out and hunted for a fund dedicated to overseas investing, and I've never tried to hold any specific percentages in overseas stocks and/or bonds.


 

0 Kudos
Highlighted
Participant ○○○

Re: Value of International and Emerging Markets in Asset Allocation? Does it help/ hurt?


@rila3400 wrote:

 

Many large U.S. companies earn a significant amount of their revenues from other countries. Consequently, some investors have concluded they don't need to invest internationally. The U.S. has the largest economy and is home to many successful companies. However, avoiding foreign-domiciled companies narrows the opportunity set and introduces the risk of missing some potentially lucrative investments.


I completely agree with the viewpoint expressed by rila3400. Look at the P/E ratios of US versus rest of the world. Just because US companies derive revenue from xUS doesn't mean the P/E should be lop-sided. Also, remember, the other side of COVID, the global inter-relationships will CERTAINLY change from the last decade(s).

I expect isolationism to set in and dollar to drop in value --- which will lead to xUS in a way making goods/services for xUS population thus becoming more profitable. And P/Es will be rewarded there. 

All the best.

0 Kudos
Highlighted
Contributor ○

Re: Value of International and Emerging Markets in Asset Allocation? Does it help/ hurt?


Not necessarily true according to many respected investment firms (e.g., Capital Group).  The P/E disparity between U.S. and international markets is mostly due to differences in sector weights.  For example, the U.S. technology sector as compared with international financial sector.  If both U.S. and international markets had similar sector weights then both markets would have nearly the same P/E.
@SteadyEddy wrote:

@rila3400 wrote:

 

Many large U.S. companies earn a significant amount of their revenues from other countries. Consequently, some investors have concluded they don't need to invest internationally. The U.S. has the largest economy and is home to many successful companies. However, avoiding foreign-domiciled companies narrows the opportunity set and introduces the risk of missing some potentially lucrative investments.


I completely agree with the viewpoint expressed by rila3400. Look at the P/E ratios of US versus rest of the world. Just because US companies derive revenue from xUS doesn't mean the P/E should be lop-sided. Also, remember, the other side of COVID, the global inter-relationships will CERTAINLY change from the last decade(s).

I expect isolationism to set in and dollar to drop in value --- which will lead to xUS in a way making goods/services for xUS population thus becoming more profitable. And P/Es will be rewarded there. 

All the best.


 

Highlighted
Frequent Contributor

Re: Value of International and Emerging Markets in Asset Allocation? Does it help/ hurt?

Typical fund diversification, among large, mid/small caps, include about 10-15% for foreign/international fund(s).  I have experimented it over the years and found it(them) to be redundant (they usually follow domestic fund trend closely).  

Emerging market fund is a different animal from the broad-based international fund.  I also experimented it for a while.  It was quite enjoyable while those countries (e.g., China, Korea, Taiwan in Asia) were riding the upward wave.  The problem is that typical investors (like me) have no sense when it would come down as fast.  It seems like a zero-sum game to me; and the fluctuation is a bit hazardous for my heart.:)

I decided not to own any of such funds long time ago.  Just me.

Highlighted
Frequent Contributor

Re: Value of International and Emerging Markets in Asset Allocation? Does it help/ hurt?


@rila3400 wrote:

 

Many large U.S. companies earn a significant amount of their revenues from other countries. Consequently, some investors have concluded they don't need to invest internationally. The U.S. has the largest economy and is home to many successful companies. However, avoiding foreign-domiciled companies narrows the opportunity set and introduces the risk of missing some potentially lucrative investments.


I love the word potentially.  The chart below is the last 10 years.

PortVis (link) shows how bad was EM compared to SP500.  And EM SD=volatility was much higher too. 

Sure, you can find several great EM companies but you can find Americans too.

PortfolioCAGRStdevBest YearWorst YearMax. DrawdownSharpe RatioSortino Ratio
VFIAX=SP50011.04% 13.34%32.33%-19.61%-19.61% 0.811.23
EEM0.75% 18.90%37.28%-23.94%-32.71% 0.10.15

 

spy vs em.PNG

0 Kudos
Highlighted
Contributor ○○○

Re: Value of International and Emerging Markets in Asset Allocation? Does it help/ hurt?

@Win1177  I knew the majority of KO sales was outside the U. S., wasn't aware of the exact number.  I probably should have mentioned that when I listed KO as a domestic stock.  That's just another reason that I don't feel any compelling need to look specifically for overseas investments.  

I also plan on KO as being a "forever" stock, which is one reason I keep picking away at it at these lower prices.  I suspect that KO is going to go down along with the market in general, but I don't want to try to trade in and out of it and get caught on the wrong side of the tape if the market were to shoot up and just keep going.  

As you know, it is a Georgia company with a great history, and while I know you generally shouldn't get emotional with a stock holding, I can't help feeling some pride in holding a fantastic GEORGIA company!

I've mentioned this before, but there is a great story about the "Coca-Cola Millionaires of Quincy, Florida".  Google it, it makes for some real interesting reading (although you very well may already be aware of this story).  

I'll have to settle for being a Coca-Cola Thousandaire…  :-)

Highlighted
Frequent Contributor

Re: Value of International and Emerging Markets in Asset Allocation? Does it help/ hurt?

Being from Georgia, growing up Seeing Coca Cola served everywhere, attending the University of GA for my undergraduate degrees, etc.; I’ve always been a Coke drinker. Owned the stock for a long time too! First lot purchased back in mid 90’s, wish I had bought more! I’ll add more if it comes down further. I’m also a “coca cola thousandaire!”

Win
0 Kudos
Highlighted
Frequent Contributor

Re: Value of International and Emerging Markets in Asset Allocation? Does it help/ hurt?


@Win1177 wrote:

Being from Georgia, growing up Seeing Coca Cola served everywhere, attending the University of GA for my undergraduate degrees, etc.; I’ve always been a Coke drinker. Owned the stock for a long time too! First lot purchased back in mid 90’s, wish I had bought more! I’ll add more if it comes down further. I’m also a “coca cola thousandaire!”


Yeah, me too; my favorite kind of coke is Pepsi!

0 Kudos
Highlighted
Contributor ○○○

Re: Value of International and Emerging Markets in Asset Allocation? Does it help/ hurt?

Us southerners like our soft drinks!  Pepsi was invented in New Bern NC, and RC Cola in Columbus GA.  Growing up, I drank them and Coke. Still remember enjoying a cold RC Cola and a Moon Pie on the mid-morning break in the tobacco fields.

0 Kudos
Announcements