Sub-emerging Markets: All that's left is the crying

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.

Re: Sub-emerging Markets: All that's left is the crying

Postby garlandwhizzer » Sat Jun 29, 2013 12:44 pm

Personally, I have half my international allocation in EM and half in DM, split within each market 50% SC and 50% LC. EM has taken a hit this year and has underperformed DM considerably for more than 18 months. It should also be noted that EM LCs like VWO have YTD and over the 18 month period significantly underperformed EM SC, like EWX and DGS. The current EM underperformance doesn't bother me at all. I'm not a weather vane for which way the wind is currently blowing because I've been investing long enough to know that periodically the wind changes and the last becomes first. I believe EMs offer greater diversification than DMs in relation to a US equity portfolio and that over the next decade EMs are likely to outperform DMs. I could be wrong but there are fundamental reasons (lower PEs, higher corporate growth rates for example) to suggest that this will be the case.


Garland Whizzer
garlandwhizzer
 
Posts: 592
Joined: Fri Aug 06, 2010 4:42 pm

Re: Sub-emerging Markets: All that's left is the crying

Postby Rick Ferri » Sat Jun 29, 2013 2:00 pm

Garland,

When did you make the decision to be 50% in EM and 50% in DM? Was it when EM stocks were all the rage and the growth in China was all over the media? Answer honestly, please.

I'm not suggesting that this was the wrong decision for you. I'm saying that whether we humans want to admit it or not, what is going on in the markets right now has a strong influence on how people invest their money right now. We are by trend followers by nature. It's very hard to ignore this biologically trait as an investor, but that's what successful investors do.

Rick Ferri
Mutual fund investing is simple. There is risk, there is return, and there are costs. All else is marketing.
User avatar
Rick Ferri
 
Posts: 7790
Joined: Mon Feb 26, 2007 12:40 pm
Location: Home on the range in Medina, Texas

Re: Sub-emerging Markets: All that's left is the crying

Postby grap0013 » Sat Jun 29, 2013 4:07 pm

Call_Me_Op wrote:The only tears being shed over this sector are tears of joy. Friday, the EM sub-class was up sharply, erasing gains in other equity markets. This is what diversification is all about.


+1

Friday's returns:

DFEVX: +0.96%
PXSV (my fav domestic SCV): -0.73%

Giddy up!
If you can't explain it simply, you don't understand it well enough.
User avatar
grap0013
 
Posts: 1302
Joined: Thu Mar 18, 2010 2:24 pm

Re: Sub-emerging Markets: All that's left is the crying

Postby garlandwhizzer » Sat Jun 29, 2013 4:41 pm

I must plead guilty to your charge, Rick. I have overweighted EMs for years and got on board when they were all the rage. Having said that, I am staying on board during the tough times like now because of the reasons stated in my previous post.

In the past year I have spent some time in Europe, France and Spain in particular, and my observations of economic conditions there and also the ineffectual EU responses to their crisis (I don't think crisis is too strong a word) are not reassuring to put it mildly. Europe is clearly in recession and one can feel the pervasive pessimism in the European air about future economic prospects. There is an identity crisis going on in Europe about whether their social and political system as it has evolved can hold up and persist in a globalized world. How this all plays out is not clear.

Japan, the other large DM holding, is not a bed of roses either, so desperate to do something, anything, to get themselves out a 30+ recession and deflation that they are now instituting policies that make our own massive FED action look timid in comparison. Not sure how it will work out in the long run and I'm not sure anyone else does either.

In short, DMs have their own problems too. Are these DM problems and uncertainties fully expressed by their current stock valuations? At present the Vanguard DM index fund, a large cap DM fund, has the exact same PE as Vanguard US Large Cap index fund, 17.8. This does not seem to reflect the differences at ground level of the respective economies. It reflects considerable optimism for the near term economic future of DMs and in fact many of the financial talking heads have been predicting for more than a year an economic rebound in Europe which has clearly not occurred.


Garland Whizzer
garlandwhizzer
 
Posts: 592
Joined: Fri Aug 06, 2010 4:42 pm

Re: Sub-emerging Markets: All that's left is the crying

Postby Call_Me_Op » Sat Jun 29, 2013 4:50 pm

Rick Ferri wrote:Garland,

When did you make the decision to be 50% in EM and 50% in DM? Was it when EM stocks were all the rage and the growth in China was all over the media? Answer honestly, please.

I'm not suggesting that this was the wrong decision for you. I'm saying that whether we humans want to admit it or not, what is going on in the markets right now has a strong influence on how people invest their money right now. We are by trend followers by nature. It's very hard to ignore this biologically trait as an investor, but that's what successful investors do.

Rick Ferri


I have the same 50% EM allocation. I did it because EM has historically been less correlated with the US market, and because the historical returns over very long periods have been much higher compared to US and other developed markets. This is part of a tilting strategy that also over-weights small-caps.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
Call_Me_Op
 
Posts: 4707
Joined: Mon Sep 07, 2009 3:57 pm
Location: Milky Way

Re: Sub-emerging Markets: All that's left is the crying

Postby Rick Ferri » Sat Jun 29, 2013 6:11 pm

Garland Whizzer and Call_Me_Op,

Well, now that you have it, stick with it. The 50/50 strategy should work as long as it's maintained with discipline.

Garland Whizzer, I've also traveled a lot. What we see as tourists in other countries isn't a good indication of how a country's equity market will perform in the future. The one's that look great can flop and the basket case countries can surge. We live in the US most of the year, and it's very difficult to understand what's going on with OUR markets, let alone trying to figure out what's going on in some foreign country we may visit for a week or two.

Rick Ferri
Mutual fund investing is simple. There is risk, there is return, and there are costs. All else is marketing.
User avatar
Rick Ferri
 
Posts: 7790
Joined: Mon Feb 26, 2007 12:40 pm
Location: Home on the range in Medina, Texas

Re: Sub-emerging Markets: All that's left is the crying

Postby grap0013 » Sun Jun 30, 2013 11:14 am

Rick Ferri wrote:Garland Whizzer, I've also traveled a lot. What we see as tourists in other countries isn't a good indication of how a country's equity market will perform in the future. The one's that look great can flop and the basket case countries can surge. We live in the US most of the year, and it's very difficult to understand what's going on with OUR markets, let alone trying to figure out what's going on in some foreign country we may visit for a week or two.

Rick Ferri


Good point Rick. Here's what happens when you make predictions with your $ when "reporting from the field". viewtopic.php?f=10&t=98230 Europe VGK +24.7% since the opening post. Get those emotions outta there!
If you can't explain it simply, you don't understand it well enough.
User avatar
grap0013
 
Posts: 1302
Joined: Thu Mar 18, 2010 2:24 pm

Re: Sub-emerging Markets: All that's left is the crying

Postby sperry8 » Sun Jun 30, 2013 11:51 am

I think panic might be happening. Dan Weiner (the editor of The Independent Adviser for Vanguard Investors) just had all his subscribers sell out of Emerging Markets. Seems like he's selling low to me. Doesn't necessarily mean EM is a buy, but it probably means we're closer to the bottom than the top. He's been wrong on EM before - had all his subscribers sell out at the low (yes, right at the low) years ago.

I am holding VWO and am in it for the long haul. I don't care about 13% this year. I'm not overweight or underweight, I hold exactly the amount it represents of the total cap of world stocks.
Certainty is a requirement of ignorance.
User avatar
sperry8
 
Posts: 639
Joined: Sat Mar 29, 2008 10:25 pm
Location: Los Angeles, CA

Re: Sub-emerging Markets: All that's left is the crying

Postby garlandwhizzer » Mon Jul 01, 2013 2:33 am

Rick, thanks for your comments. I am going to stick with 50/50.

Let me ask you a question. Are you going to stick with overweighting REITS and perhaps PM equity which I believe you have recommended in the past? Both, like EM, are having their problems now. If they continue to underperform TSM for significant periods of time do you intend to stay the course on them?

Garland Whizzer
garlandwhizzer
 
Posts: 592
Joined: Fri Aug 06, 2010 4:42 pm

Re: Sub-emerging Markets: All that's left is the crying

Postby Call_Me_Op » Mon Jul 01, 2013 8:09 am

garlandwhizzer wrote:Rick, thanks for your comments. I am going to stick with 50/50.

Let me ask you a question. Are you going to stick with overweighting REITS and perhaps PM equity which I believe you have recommended in the past? Both, like EM, are having their problems now. If they continue to underperform TSM for significant periods of time do you intend to stay the course on them?

Garland Whizzer


All major allocation decisions should be strategic, not tactical - and are worthless unless you stick with them over very long time periods. If I overweight something that is having problems now, I couldn't care less. The question is did I have a well thought-out reason for over-weighting that asset sub-class to begin with? And secondly, if I am wrong will I still be OK? The latter point is don't put all of your eggs in one basket.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
Call_Me_Op
 
Posts: 4707
Joined: Mon Sep 07, 2009 3:57 pm
Location: Milky Way

Re: Sub-emerging Markets: All that's left is the crying

Postby menlo » Mon Jul 01, 2013 12:08 pm

I also over-weight EM vs. DM (40/60, I think) and -- honestly -- I made that decision in view of its remarkable growth the several prior years and based on some loose justifications for why it should continue to outperform in the future. However, like others in this thread, I'm planning to stick to this allocation because I believe that (1) staying the course is probably more important than getting the exact right AA (as much as I enjoy trying); and (2) correlations have been trending up over the past several years (as Bill Bernstein has written about in "Skating to Where the Puck Was") so it probably doesn't matter all that much in the long term whether EM is slightly overweight, underweight, or market weight.
menlo
 
Posts: 78
Joined: Mon Jul 04, 2011 12:05 pm

Re: Sub-emerging Markets: All that's left is the crying

Postby Rick Ferri » Mon Jul 01, 2013 12:57 pm

garlandwhizzer wrote:Rick, thanks for your comments. I am going to stick with 50/50.

Let me ask you a question. Are you going to stick with overweighting REITS and perhaps PM equity which I believe you have recommended in the past? Both, like EM, are having their problems now. If they continue to underperform TSM for significant periods of time do you intend to stay the course on them?

Garland Whizzer


My REIT allocation is a different story. It follows my "Total Economy Portfolio" concept where a portfolio is designed to better emulate the economy rather than the stock market, at least partially.

Rick Ferri
Mutual fund investing is simple. There is risk, there is return, and there are costs. All else is marketing.
User avatar
Rick Ferri
 
Posts: 7790
Joined: Mon Feb 26, 2007 12:40 pm
Location: Home on the range in Medina, Texas

Re: Sub-emerging Markets: All that's left is the crying

Postby BornInCA » Mon Jul 01, 2013 2:06 pm

Rick Ferri wrote:Emerging market stock and bond funds have been hammered this year. The Vanguard FTSE Emerging Markets ETF (VWO) is down 11% and it's at a cumulative loss for the past 2-years. My how things change. Weren't emerging market supposed to be the saving grace of investor's portfolios?
Rick Ferri


I always believed that EM stocks go WAY up or go WAY down, i.e. they experience "wild" swings. In addition to my TSP being the majority of my retirement nest egg, this is the reason why I make my bi-weekly IRA contributions to Vanguard Emerging Markets Investor Shares (VEIEX). I guess I'll have to wait a little longer to convert these shares to Admiral Shares. :greedy (and no I don't feel like converting to ETF shares every month or every two weeks either, not worth the hassle)
BornInCA
 
Posts: 239
Joined: Tue Oct 26, 2010 9:40 pm

Previous

Return to Investing - Theory, News & General

Who is online

Users browsing this forum: dkdoy, ftobin, LifeLearner, mnvalue, musbane, ralph124cf and 47 guests