International Equities and Diversification

The evolution of the global economy has changed the relationship between U.S. and international stocks such that equity investments in many developed companies provide little diversification benefit. This according to an article in CFA Institute. The article argues that although many U.S. investors allocate to international equities in the hopes of diversifying portfolio risk without compromising long-term returns, the data paints a different picture. Specifically, it reports, “sometime in the mid-1990s, international stocks stopped outperforming… Read More

When Your Experience Fails You

By Jack Forehand (@practicalquant) —   Because it’s easier, we’re inclined to use our recent experience as the baseline for what will happen in the future. In many situations, this bias works just fine, but when it comes to investing and money it can cause problems. -Carl Richards The next market crash must be coming. We are already in our second correction of the year and having lived through the past two bear markets, it seems obvious that… Read More

Overseas Investors Buying U.S. Stocks Again

After four straight years of pulling money out, foreign investors have invested $66.4 billion into the U.S. stock market through September, the “biggest buying spree since 2012,” according to a recent article in The Wall Street Journal (data from Deutsche Bank). “And there are signs that foreigners aren’t done buying,” the article says, noting that a recent survey by Bank of America Merrill Lynch showed that allocations to U.S. equities by global fund managers rose… Read More

Zweig: Overseas Stock Investment Could Have Significant U.S. Exposure

A new study in the Financial Analysts Journal finds that investors can improve returns by buying international equities based on where they do most of their business rather than where they are headquartered. This according to a recent Wall Street Journal article by Jason Zweig. Zweig offers several examples including Infosys, the second-largest holding company in many India funds, which does “more than 60% of its total sales in North America and only 3% in its… Read More

Europe Still Has Room to Run

Despite fretting over the French election, first-quarter European market data surged and the European Commission’s consumer sentiment survey is near its 2007 peak, according to a recent article in The Wall Street Journal. The question, it says, is “how good can it get?” While Eurozone gross domestic product expanded by only 2% in 2015 and 1.8% in 2016, the article says, “the currency bloc is growing faster than potential, which many peg at 1% or… Read More

The Relationship Between Stocks and the U.S. Dollar

While the dollar’s relationship with the economy as a whole is relatively “murky,” the relative performance of U.S. and foreign equities against the dollar is more distinct, writes Ritholtz Wealth Management’s Ben Carlson in a recent Bloomberg article. “When you own shares from other countries around the globe, the diversification benefits come mainly from your currency exposure,” says Carlson. That is, he explains, unless you are hedging against currency risk, you are exposed to exchange… Read More

European Stocks Look Appealing Compared to U.S. Shares

Investors shying away from stretched stock prices in the U.S. are “gravitating toward Europe for cheaper bargains as the trade matures,” according to a recent Bloomberg article. Morgan Stanley equity strategists raised their 2017 earnings-per-share growth forecasts for the MSCI Europe Index to 16% from a previous projection of 12%, the article reports. According to strategists at Societe Generale SA, the S&P 500 has “limited potential for returns over the next couple of years compared… Read More

More Upside in International Stocks

The continued grind of the bull market may not be justified, according to an article in this week’s Investment News. In fact, the article, written by Joe Smith, senior market strategist at CLS Investments, argues the positive data points currently baked into the market—a dip in unemployment, improved corporate sales and earnings, additional consumer spending—don’t necessarily indicate a “positive view for investors in the U.S.” Domestic stocks, it asserts, look expensive compared to those overseas, and… Read More

Overseas Blue Chip Picks

Currently stretched equity valuations, an imminent presidential election and a probable December rate hike are fueling uncertainty in the markets. Validea CEO John Reese, in a Forbes article appearing yesterday, outlines issues that could support the notion of increasing international stock holdings as part of a balanced investment portfolio. “Europe is facing a number of structural challenges,” Reese writes, but lists some issues that could support the idea of overseas investing: The economy is increasingly global;… Read More

Paulsen Urges Shifting More Towards International Stocks

US investors should start considering a heavier weighting to international stocks, according to James Paulsen of Wells Capital Management. Paulson, who is chief investment strategist at Wells, says that a commodity-price rebound will benefit international stocks more than the domestic names.  “The U.S. economy is more consumer-centric compared to foreign economies,” Paulson wrote in a note to clients. According to the Bloomberg piece Paulson says, “the pendulum is due to swing against domestic shares, he… Read More