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Explorer ○○○

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

I bought a very small amount of T. Rowe Price International Stock Fund decades ago as an R&D experiment. It's had a compound annual growth rate of 2-3%. I keep it to remind me that international investing seems to be a hoax perpetrated by people who have a stake in it. A well diversified U.S. portfolio of companies like 3M, Coca Cola, Apple, etc. has significant international exposure. 

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


@mlott1 wrote:

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.


I grew up over yonder, Cobb county. We drank RC Cola all the time. When it came to cokes, it was RC! I ate up some Moon Pie treats when I could get them. Chewed some, but that is another story.

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Participant ○○

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

Wow, I find it really striking how strong the consensus is here for low or no international stocks. The fraction of posters with that view is close to 100%. I'd expect a pretty strong lean in that direction given recent US market outperformance. But nothing like this. 

Makes me think I should dump all US stocks and go to 100% international. 

 

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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.


It has been reported that over 50% of the earnings of SP 500 co are from outside the US. This was Jack Bogle’s  rationale for recommending that US investors do not need to invest in foreign companies.
International stocks have under performed US stocks since 2009 because the US economy has been stronger Than the rest of the world.

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


@Academic wrote:

Wow, I find it really striking how strong the consensus is here for low or no international stocks. The fraction of posters with that view is close to 100%. I'd expect a pretty strong lean in that direction given recent US market outperformance. But nothing like this. 

Makes me think I should dump all US stocks and go to 100% international. 

 


Paul:  LOL Academic.  Thanks for making me laugh.  I can use all the laughter I can find.  
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Participant ○○

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

It kind of strikes me as going against all conventional wisdom that's been espoused here as long as I've been here about being fully diversified... I mean like I asked earlier in this thread...what's Different This Time...  or i.e., are we in a new paradigm of relatively short term market timing ....I'm confused - esp. given the number of times i've been allegedly wisely guided to believe a balanced portfolio incorporates at least some level of exposure to the entire global market for said 'diversification.'   As I say, what's different 'This Time.'  Just curious, not trying to be disrespectful or anything

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

@mikes425  Given that a large percentage of S&P 500 sales and earnings are outside the U.S., that would seem to me to constitute "foreign" or "international;" exposure.  It's just not Officially Labelled As Such. 

If you feel that a fund specifically focused on international stocks and/or bonds is warranted, you have a wide assortment to choose from.  

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


@FD1001 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 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

 


I was referring to international companies in general and not EM specifically. Let's examine the 10 Yr. period directly preceding the start of your backtest. The results are significantly different!

Link

Portfolio 1: Vanguard 500 Index Inv
Portfolio 2: Vanguard Total Intl Stock Index Inv
Portfolio 3: Vanguard Emerging Mkts Stock Idx Inv

US Foreign Returns.JPG

 

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

Mikes425, 

Agree! All of the sudden people are “throwing the baby out with the bath water”, referring to avoiding International/ EM based on recent past underperformance. Makes me wonder if I should “overload” International/ EM, although to be honest I am NOT that brave.

I have decided to keep my positions in International and EM, probably around 15-20% of my equity allocation. Not a “ton” by any means, but I believe in the concept of “diversification” as well as (eventual) “reversion to the mean”.

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


@Win1177 wrote:

Mikes425, 

Agree! All of the sudden people are “throwing the baby out with the bath water”, referring to avoiding International/ EM based on recent past underperformance. Makes me wonder if I should “overload” International/ EM, although to be honest I am NOT that brave.

I have decided to keep my positions in International and EM, probably around 15-20% of my equity allocation. Not a “ton” by any means, but I believe in the concept of “diversification” as well as (eventual) “reversion to the mean”.


VT (FTSE all world all cap equity index) = 54% USA + 36% non-USA dev + 10% EM.

Our equities = 50% USA + 32% non-USA dev + 18% EM

Both of us are tilting away from the USA a bit.

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Explorer ○○○

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

I bought a very small amount of T. Rowe Price's International Stock Fund 27 years ago. It's had an annual compound growth rate of 3.15%. I kept it for R&D purposes and laughs. Pundits used to say there was a negative correlation with the U.S. market, so international was a good diversifier. You don't hear that much any more. I think the gurus who keep saying to diversify 10-20% of your portfolio globally are like steers. They just keep trying. 

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Participant ○○○

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

 

Right now 16% of our equity allocation is EM.

45% of EM is in China which means 7% of our equity allocation is in Chinese stocks.

In January we will over rebalace equities from 45/55 to 50/50. All EM. The share of EM will go to 26% of equity.

This means our equity allocation will be 12% Chinese stocks and 44% USA stocks.

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

The argument of diversification sounds correct, but here is a tactical question: We see how bad is COVID 19 for the developed countries. What will happen in India, Pakistan, Latin America, Africa? Are we ready to invest there for diversification?

 

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Explorer ○○○

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

Agree with OP, but part of the issue is with international indexing.  The right active manager can add value.

My large growth international fund MFAPX held up well during the selloff, still 10% 5-year trailing returns, and only 13 standard deviation.  Did better than my U.S. funds.  However, my international index fund (VFWAX) -- atrocious.  Owned for 10 years and have a NEGATIVE return (I've put chunks of money in it at different times, clearly the wrong times).

For me, I've reduced my international exposure overall and increased my active manager component.  While I overweighted international the last 10 years, to the detriment of total return, I am now underweighting it BUT I do not believe it is wise to abandon international. 

There is an undeniable nationalism trend and we are likely to see more divergence in international economic growth in the next 10 years.  Perhaps the U.S. outperforms, but it's also equally possible that we'll do a worse job than other countries digging out of the pandemic and suffer more sluggish growth.

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

There's some literature that tries to identify an "efficient frontier" in the proportion of one's portfolio that should be held in international (over the long term). https://www.wallstreetphysician.com/international-stock-allocation/

Here's a link to one chart drawn from that genre. https://www.bogleheads.org/wiki/File:US-International.png

I keep about 20% of my main investment port in international. At this time that's one holding:  RERGX (American Funds Europacific Growth).

ADDED: At some times I have given up all of my international holdings in response to short-term overall market trends. Who wants to hang onto a lagging sector or special part of the market when US Growth is soaring? But now that I'm thoroughly retired, I'm not playing that game.

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Explorer ○○

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

I am a Fidelity customer and like to use their ETF Screener. The screener defaults to the ETFs that are 5 day winners. The screener now is showing the 5 day leaders to be China ETFs. Number 13 on the list is EMQQ. An  EMERGING MARKETS INTERNET & ECOMMERCE ETF. 56% China. Check out the long term returns. I'm considering a small investment. 

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

FWIW to anyone, I see it THIS way...  To do better than the US, two things have to happen to equity:  The US has to be doing at least ok, and foreign has to have some advantage over the US.  If equity is doing poorly in the US, ALL boats sink.  Now, what advantage exists for foreign, but not for the US; while equities are doing 'ok', and while everyone is in a zero to negative rate environment?  I'm asking because I don't see one.  And ARE equities going to DO 'ok'?  Foreign probably IS undervalued relative to the US, but doesn't it DESERVE to be?

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Participant ○○○

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

If you believe the "Big Mac Index" the USD is 20% over valued vs the GBP and Euro and 30% over valued vs the RMB. Could this be the factor we're looking for so non-USA equities beat USA equities?


@racqueteer wrote:

FWIW to anyone, I see it THIS way...  To do better than the US, two things have to happen to equity:  The US has to be doing at least ok, and foreign has to have some advantage over the US.  If equity is doing poorly in the US, ALL boats sink.  Now, what advantage exists for foreign, but not for the US; while equities are doing 'ok', and while everyone is in a zero to negative rate environment?  I'm asking because I don't see one.  And ARE equities going to DO 'ok'?  Foreign probably IS undervalued relative to the US, but doesn't it DESERVE to be?


 

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


@unbiased2020 wrote:

Agree with OP, but part of the issue is with international indexing.  The right active manager can add value.

My large growth international fund MFAPX held up well during the selloff, still 10% 5-year trailing returns, and only 13 standard deviation.  Did better than my U.S. funds.  However, my international index fund (VFWAX) -- atrocious.  Owned for 10 years and have a NEGATIVE return (I've put chunks of money in it at different times, clearly the wrong times).

For me, I've reduced my international exposure overall and increased my active manager component.  While I overweighted international the last 10 years, to the detriment of total return, I am now underweighting it BUT I do not believe it is wise to abandon international. 

There is an undeniable nationalism trend and we are likely to see more divergence in international economic growth in the next 10 years.  Perhaps the U.S. outperforms, but it's also equally possible that we'll do a worse job than other countries digging out of the pandemic and suffer more sluggish growth.


You agree based on what?  ;-)

MFAPX have done a bit better than SPY for 3-5 years but trails for 10 but QQQ beat it for 1-3-5-10 years. If your fund can't beat the indexes you better use the indexes.  Possibilities are endless, we are talking about reality.  I can easily find great US based funds, check MPEGX and why I don't need international funds.

40% of the SP500 + 50% of QQQ revenues come from abroad.

I have heard for at least 4-5 years that international is going to outperform, it's just logical, this year is the one.

If not the US, I would look at Asia+Pacific.  Why do I want to be invested in Europe?

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

"If not the US, I would look at Asia+Pacific.  Why do I want to be invested in Europe?"

I completely agree.

We've been invested in world equities since Jan 2006. In hindsight we should have been 100% USA.

Thankfully our prior returns (1984-2005) and two "buy the bear" market timed buy and sells still has our 36 yr CAGR very comfortably ahead of par.

Our equity allocation is slightly tilted away from US and toward EM. 18%vs par 10%. I'm tempted to push for more. Like 26% of stocks.

EM equities are cheap with undervalued currencies. Reason and logic says it should out perform.

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