First of all I wanted to mention how excited I am to get TTP Trading up and running (http://ttptrading.com). I’m really excited, along with CJ and Anthony, to provide a product that we think will be a great value to members. Please check it out and sign up for the trial and be sure to lock in the early bird pricing if you are interested!
Now I’ll get to it. I’ve written on a number of occasions since this summer why I’m moving my passively managed accounts (i.e. work retirement account, kids college savings, etc.) to be more heavily weighted in international equities vs. US equities. US markets have had an incredible run of outperformance compared to their international peers for the last 8 or so years. However, it looks like that trend has broke and I suspect we are in for an extended run of US underperformance. I wouldn’t say this reversal is confirmed yet, but it looks like we might be in the beginning stages. See the chart below showing the non-US outperformance from 2003-2008 followed by major US outperformance up until this year.
Being positioned correctly in this regard can obviously have huge impacts on your returns as they compound over longer periods of time and I suspect most investors have portfolios weighted very heavily with US equities. I know I did to start this year.
As you know I typically post a lot of trade setups I believe have favorable risk / reward characteristics. I rarely post about portfolio management. However, I believe this international vs. US issue is important enough to write about again. Speaking of favorable risk / reward characteristics, check out the relative charts below.
Here’s the Vanguard FTSE All-World ex US ETF (VEU) vs. the popular SPDR S&P 500 ETF (SPY). The downtrend from 2015 recently broke, it’s above its 40 week MA and looks to be in a bull flag. Obviously there are no guarantees, but I think the odds favor this going higher.
Here’s the iShares MSCI Emerging Markets ETF (EEM) vs. SPY. Again, downtrend line broken, above the 40 week MA, holding above former resistance from a year ago and breaking out.
Frontier markets also look the they are on their way to outperforming the S&P 500. Here’s the iShares MSCI Frontier 100 ETF (FM) vs. SPY.
What’s interesting is that not only are we seeing relative outperformance on the charts for international equities but many countries outside the US are much more attractively valued. If you are into valuation metrics and want to compare various countries, check out this website – http://www.starcapital.de/research/stockmarketvaluation. It’s a really neat tool.
I could be wrong, but I think this run of US outperformance is coming to an end and I am positioning myself accordingly in my passively managed accounts.
Best wishes to you all and I hope you have a great Thanksgiving!