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Frequent Contributor

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


@galeno wrote:

"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.


I agree as well. I'm holding off adding to US equity for all the obvious reasons (rapid run-up in share prices, high valuations, Fed actions, corona virus, riots in major cities, etc.) I'm a little more comfortable adding to foreign equity, but not much. Europe - ugh, what a mess. Latin America - even worse. Asia Pac is where I am most comfortable, but I wouldn't go so far as sanguine. US-China tensions are a concern, and so are China-India tensions. Southeast Asia / Emerging Asia is fragile. And the world is more correlated than ever; if the US market crashes, others will follow. Walls of worry everywhere you look.

The best bets are probably maximally uncorrelated assets like Chinese small caps, but I'm just not interested in doing that sort of thing with serious sums of money. And I'm trying to avoid small, non-strategic "explore" positions. (I do own a fund with significant exposure to Japanese mid-cap health care companies. I think this kind of exposure is a good diversifier and will prove to be a rewarding holding.)

Fortunately my portfolio is more or less where I want it to be. If there's another crash or serious downturn, I'll be ready to buy. Otherwise I am happy to hold, reinvest dividends, and let everything ride.

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

I question whether Europe is "such a mess" as multiple posters opine.  Slow growth rates, for sure, but a solid degree of safety.  I see prosperous, stable democracies, with lots of big multinationals, whose profits do not depend on Europe only.  Favorable P/E ratios compared to US companies counterbalance higher taxation on dividends by both the host country and the US when there is no treaty.  

Years ago, I remember reading in one of Siegel's books how much better investors had done investing in Brazil than in China over time, even though the Chinese economy had grown several fold compared with Brazil over the preceding quarter century.

 

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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. 

 


Academic, I just read the entire thread.  I don't fully agree with your premise that a "strong consensus" was for no (or low) international.  There were, IMO, a goodly number of people holding or supporting international investing.  The words "return to the mean" are used in many, many posts...as justification.

R48

 

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

Some viewpoints to share:

--It is suggested that: "retirees should tilt to the country in which they live."  This is because you spend the currency in the country where you live.  You do not want to take on added risk of a currency devaluation going against you.  Currency value changes within your own country have minimal impact on retirees.  So as a rule of thumb, USA retirees, keep int'l percentage lower.

--There is very little discussion regarding the FUNDAMENTALS  of investing in international versus USA.  In this regard, there are to me some major, major fundamentals that suggest tilt to USA, not int'l.  Such as:

1.  Technology.  This is a historic time period game changer.  Places like Europe and others have little or no technology companies.  Strongly favors USA in long run.

2.  Covid19...Big winners for next ten years ,fundamentally, will be USA companies, mostly LARGE CAP..AND HIGH TECH...AND NICHE COMPANIES.  Int'l lacks these.  Further, things like reduced travel, reduces services, really hurt int'l more.

3.  USA is reserve currency...has trillions to bail out usa companies/economy...not so most in int'l.

4.  "Age of the machines".  We are in first stages of companies implementing robots, AI, electric autos etc, where USA and perhaps China dominate.  Company gains will come at expense of workers/and int'l.  

5.  Bring supply chains home.  This theme has legs.  First steel.  Now people understand why, from a security standpoint and USA worker standpoint, we need to bring partly on-shore many supplies such as personal protective eq./drugs/ etc.  Bring these back to give minorities some work!  Apple, why are you not making some phones in USA??

6.  Technically, Int'l Funds have not moved back above their 200 day Moving Averages.  For me, no accumulating would occur until this happens.

--------------------------------------

In summary,  I find reversion to the mean to be a less than persuasive argument.  Such reversion occurs with somewhat like assets.  There is no reason int'l has to rise in price just to revert...must be backed over time by fundamental, real value.  Like, do we think JC Penny will revert to mean versus Amazon; or several examples.  Value traps abound today.  USA and the world are truly undergoing  major economic  operating system changes.

Thus, my first stock fund sales during this COVID period, beginning in January (posted same)  were in Energy (now zero), but also International and Emerging Markets...reducing allocation by large percentage amount.  For example...reduced TIBIX(lots of Europe).

I consider the next decade could be even worse for Europe and Int'l, than the past decade.  So I have been reducing exposure accordingly.  So far, so good.

Good luck all.

R48

 

 

 

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

Nice post R48  " 6.  Technically, Int'l Funds have not moved back above their 200 day Moving Averages.  For me, no accumulating would occur until this happens."

 

I agree with a lot of your thinking on this. However, I've been increasing my E/M exposure the last couple of months as both my international funds have been performing well, and appear to be above their 200DMA. I use MFAPX and ARTYX. I'm now up to about 15% int'l. But I will modify that again if things roll over.

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

Excellent post, R48. I would add to your list of fundamentals, more professional auditing in the U.S. China periodically comes up with accounting frauds that are now expected. Germany has generally been clean until the payments processing firm Wirecard just announced that they can't find the equivalent of $2.1 billion in cash. This is astonishing. We, of course, have occasional accounting surprises, but I'll stick with American accounting and auditing standards over foreign. 

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


@Coptomist wrote:

Nice post R48  " 6.  Technically, Int'l Funds have not moved back above their 200 day Moving Averages.  For me, no accumulating would occur until this happens."

 

I agree with a lot of your thinking on this. However, I've been increasing my E/M exposure the last couple of months as both my international funds have been performing well, and appear to be above their 200DMA. I use MFAPX and ARTYX. I'm now up to about 15% int'l. But I will modify that again if things roll over.


Wow...was unaware of the impressive performance of ARTYX Fund.  Yes, well above 200 day MA.  Sure shows the effects of top momentum.  Eclectic group of holdings.  I will be monitoring for a potential switch into ARTYX.  Perhaps one of my (adult) kids IRAs.

R48

 

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Artisan ARTYX / APDYX

I own APDYX—no minimum at TDA. All Artisan’s funds are expensive, the investor class especially. This manager did well at Thornburg and he continues to do well. It’s not a true EM fund, but I don’t care. If it were cheaper I’d own more, but it’s still on my “add” list, especially since TDA gave me a bunch of TF waivers in exchange for a TOA recently. 

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

T. Rowe Price Global Stock (PRGSX) is another good performer.

These days LCG is outperforming, to put it mildly.

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