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

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

Postby Rick Ferri » Wed Jun 12, 2013 5:32 pm

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? Many advisers thought so:

Submerging emerging markets bad news for advisers "Plans to boost investments in the sector could not have come at a worse time...more than half the advisers surveyed by InvestmentNews at the beginning of the year said they planned to increase their allocation to emerging market stocks. No other equity asset class was cited as often."

It just goes to prove once again that many advisers are trend followers. They fall for the same hot dot chasing as many individual investors do.

Here is a funny story. About two years ago, I had a phone conversation with man who was considering using my company. There was one caveat. He insisted that we double the emerging market exposure in his portfolio. I flatly refused. After arguing with the guy for several minute, I finally said that his enthusiasm for emerging markets was as good a reason as any to NOT take a higher allocation because every time in my career that I heard this level of enthusiasm for an investment, it always ended badly. That didn't go over well. He proceeded to read to me a list of his college degrees that included two PhDs, and then basically explained to me how ignorant I was about the world and that I shouldn't be managing money.

I wonder how he is doing today?

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

Postby Randomize » Wed Jun 12, 2013 5:41 pm

So what you're saying is, with prices down and sentiment is negative, now is the time to buy? :D
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Re: Sub-emerging Markets: All that's left is the crying

Postby Blues » Wed Jun 12, 2013 5:51 pm

Rick Ferri wrote:I wonder how he is doing today?

Rick Ferri


So Ferri crows "no mercy"...

https://www.youtube.com/watch?v=loyRYFUYg9g

[Darn, --admin LadyGeek] Rick, now I can't get the song out of my head... :mrgreen:
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Re: Sub-emerging Markets: All that's left is the crying

Postby Liquid » Wed Jun 12, 2013 6:16 pm

brianbooth wrote:So what you're saying is, with prices down and sentiment is negative, now is the time to buy? :D


Not yet, wait for panic. :sharebeer
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Re: Sub-emerging Markets: All that's left is the crying

Postby DVMResident » Wed Jun 12, 2013 6:20 pm

My bands just told me to buy with the proceeds from my US Small Caps. Ask me if it was a good move in 30 years.
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Re: Sub-emerging Markets: All that's left is the crying

Postby nisiprius » Wed Jun 12, 2013 6:58 pm

??? Genuine question, not rhetorical. The article Rick links says
“Emerging market credit is our least favorite sector because of everything going on with the dollar,” Christine Hurtsellers, CIO of ING Investment Management, said at a press conference in New York City Tuesday morning.
1) What is the "everything" that she says is "going on with the dollar?"

2) Is what she calls "emerging market credit" the same thing as what I call emerging markets debt? If not, what it is?

In the case of emerging market debt (bonds), I thought most of it was issued denominated in dollars. If so, why would the behavior of the dollar matter to U. S. investors in emerging market debt?

Here's a chart of the dollar index. I don't see anything in particular happening recently, compared to what was happening in 2008-2009.

Image

And what was happening then doesn't look like much, compared to what was happening before.

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

Postby Random Musings » Wed Jun 12, 2013 7:37 pm

I betcha emerging market index outperforms domestic index over the next 5 to ten years. I can't get excited about short term noise.

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

Postby scone » Wed Jun 12, 2013 7:38 pm

"After auguring with the guy for several minute..."

Coolest Freudian slip EVAH! :D
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Re: Sub-emerging Markets: All that's left is the crying

Postby Blues » Wed Jun 12, 2013 7:46 pm

scone wrote:"After auguring with the guy for several minute..."

Coolest Freudian slip EVAH! :D


Funny...I was thinking of "auger" in that you just can't drill some things into people's heads...but "augur" is even more apropos. Too funny.
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Re: Sub-emerging Markets: All that's left is the crying

Postby nisiprius » Wed Jun 12, 2013 7:50 pm

Random Musings wrote:I betcha emerging market index outperforms domestic index over the next 5 to ten years.
Sure. More risk, more return. The question is whether holding emerging market index does anything very different from simply boosting your domestic stock allocation to the point where you get the same level of risk.
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Re: Sub-emerging Markets: All that's left is the crying

Postby baw703916 » Wed Jun 12, 2013 7:58 pm

EM small caps are doing quite a bit better than EM as a whole: DGS and DEMSX are both down only 2-3%. EM value hasn't outperformed EM as a whole this year, but is ahead cumulatively by quite a bit over the last few years.

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

Postby rustymutt » Wed Jun 12, 2013 8:13 pm

I would view this as a good time to invest long term into EM. If I was a young person with monthly contributions, EM would be the on my list. 5% of my portfolio is EM.
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Re: Sub-emerging Markets: All that's left is the crying

Postby Rick Ferri » Wed Jun 12, 2013 8:14 pm

Blues wrote:
scone wrote:"After auguring with the guy for several minute..."

Coolest Freudian slip EVAH! :D


Funny...I was thinking of "auger" in that you just can't drill some things into people's heads...but "augur" is even more apropos. Too funny.


Yeah, yeah. OK. It's fixed. :oops:

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

Postby telemark » Wed Jun 12, 2013 8:22 pm

DVMResident wrote:My bands just told me to buy with the proceeds from my US Small Caps. Ask me if it was a good move in 30 years.


I hadn't been paying attention, but my allocation is out of band too. Thanks for the heads up. Time to top it off with new money.
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Re: Sub-emerging Markets: All that's left is the crying

Postby ge1 » Wed Jun 12, 2013 8:32 pm

Random Musings wrote:I betcha emerging market index outperforms domestic index over the next 5 to ten years. I can't get excited about short term noise.

RM


Agree. My stock allocation is mostly emerging markets.
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Re: Sub-emerging Markets: All that's left is the crying

Postby Random Musings » Wed Jun 12, 2013 9:42 pm

nisiprius wrote:
Random Musings wrote:I betcha emerging market index outperforms domestic index over the next 5 to ten years.
Sure. More risk, more return. The question is whether holding emerging market index does anything very different from simply boosting your domestic stock allocation to the point where you get the same level of risk.


For me, I have emerging market exposure which provides diversification in my equity positions. I have a slight tilt in international towards emerging, but only slightly away from TISM. I prefer holding total market positions where there are some correlation differences than just ramping up more domestic. Livin' on the edge.

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

Postby nedsaid » Wed Jun 12, 2013 10:25 pm

This is why I don't chase hot asset classes. Doing this often ends in tears. It also goes to show that you have to pay attention to valuations.

I think Emerging Markets is an important asset class. I own three EM funds. I am buying Emerging Markets with 10% of my new funds for investment at my workplace savings plan. We all know that EMs are volatile and sometimes don't do too well.

Another thing is that Emerging Markets were in this last cycle a commodities play. This is particularly true of Brazil and Russia. When the Chinese building boom cooled, the Chinese economy cooled, and we are seeing the effects in commodity prices. In turn, the Emerging Markets have cooled off.

It also goes to show that Advisors do not have super human powers and are subject to performance chasing like the rest of us.
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Re: Sub-emerging Markets: All that's left is the crying

Postby staythecourse » Wed Jun 12, 2013 10:44 pm

I have EM as well as EM mid/ small cap as part of VSS with Vanguard. I can't even tell what is up or down anymore. I just keep shoveling money into my asset allocation each month to bring up the lowest returners.

BTW, what is surprising?? EM are either boom (best returning asset class) or bust (worst) almost each and every year last I looked at Callans Periodic Table of returns.

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

Postby grap0013 » Thu Jun 13, 2013 12:03 am

Come to think of it, this is starting to feel like 2011 again when EMs really trailed the US market. Now it's just a test of willpower. Last one holding the bag :moneybag gets paid. :twisted:
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Re: Sub-emerging Markets: All that's left is the crying

Postby Call_Me_Op » Thu Jun 13, 2013 6:33 am

Rick,

Are you confusing strategy with outcome here? Just because emerging markets are zigging when other stocks are zagging, does that somehow make them bad? I thought that's what diversification is all about.

FWIW, I will soon be adding to my EM position - part of routine rebalancing in accordance with the IPS.
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Re: Sub-emerging Markets: All that's left is the crying

Postby Levett » Thu Jun 13, 2013 7:41 am

Near as I can tell Rick is addressing the phenomenon of overweighting any asset class.

This, in any event, is how I read the following: "as good a reason as any to NOT take a higher allocation because every time in my career that I heard this level of enthusiasm for an investment, it always ended badly."

Enthusiasm (including two Phds) is a reliable early warning sign 'cause human behavior just can't seem to contain itself. :wink:

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P.S. I added boldface.
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Re: Sub-emerging Markets: All that's left is the crying

Postby IlliniDave » Thu Jun 13, 2013 7:58 am

I just put in my 'buy' this morning for the EM index at VG. Infinitely increased my exposure. Just part of the plan. Either it will pay off in 10-15 years or it won't.
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Re: Sub-emerging Markets: All that's left is the crying

Postby nisiprius » Thu Jun 13, 2013 8:06 am

Random Musings wrote:...For me, I have emerging market exposure which provides diversification in my equity positions. I have a slight tilt in international towards emerging, but only slightly away from TISM. I prefer holding total market positions where there are some correlation differences than just ramping up more domestic....
And yet this source is showing an 0.91 five-year correlation between iShares Emerging Markets and Vanguard Large-Cap Stock Index, so "where's the beef?"

As nearly as I can tell, a lot of "correlation" talk seems to be about very short term fluctuations that are probably just sampling error. (It takes a very large sample to get an accurate estimate of correlation).

Have you got any sources that actually show meaningfully low long-term correlation between Emerging Markets and plain old S&P 500 or U.S. total market?

(Added) Found a paper that talks about the elephant in the room, Emphasizing Low-Correlated Assets:
The Volatility of Correlation
. He actually looks at how consistent or inconsistent correlations are, and according to him, as of 2007, the correlation between Emerging Markets and the S&P 500 has fluctuated between 0.25 and 0.93 and he judges it simply to be "inconsistent."

According to him, no pairs of stock asset classes are consistently low. In every pair that are consistently low, one member of the pair is a non-stock class: U. S. bonds, global bonds, cash, natural resources, or "long-short." (Interestingly, real estate does not have consistently low correlation with any stock classes).

And that's as of 2007, and all the talk seems to indicate that correlations have, if anything, risen since then, so I don't think the chart would look very different today.
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Re: Sub-emerging Markets: All that's left is the crying

Postby Noobvestor » Thu Jun 13, 2013 8:23 am

Rick, normally I like your contributions, but this time it reads like you are just another 'I told you so, except I'm only now telling you so after it happens' guy ... what would you be saying about this guy you're making fun of if EM were up and US were down right now? Would you have some other anecdote about someone who wanted to invest US-only?

Nisi ... you can see from the last few years of US/Dev/EM divergence that there is a wide dispersion of possible outcomes, and that adding EM != adding more US. I, for one, don't expect EM to protect me in a broad-equity downturn or flight-to-safety situation, but I do expect it to help protect me from potential long-term, single-country underperformance (see: Credit Suisse yearbook single-market variability).

I, for one, am rebalancing as usual, and frankly I'm more comfortable buying more EM right now (which is what my plan calls for) than I would be buying more US right now.
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Re: Sub-emerging Markets: All that's left is the crying

Postby Rick Ferri » Thu Jun 13, 2013 8:42 am

Rick, normally I like your contributions, but this time it reads like you are just another 'I told you so, except I'm only now telling you so after it happens' guy ... what would you be saying about this guy you're making fun of if EM were up and US were down right now? Would you have some other anecdote about someone who wanted to invest US-only?


My intent with this post was to show once again that when everyone believes they know the future is when they're most likely to be wrong. This is similar to my recent article on bond yields, The Case for Lower Interest Rates..

I have no idea where EM is going in the short-term. In the long-term, EM will go higher if capitalism survives.

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

Postby baw703916 » Thu Jun 13, 2013 9:08 am

The basic problem with most investors is that they think on too short a time scale.
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Re: Sub-emerging Markets: All that's left is the crying

Postby nisiprius » Thu Jun 13, 2013 9:39 am

baw703916 wrote:The basic problem with most investors is that they think on too short a time scale.
It's not as simple as that. I think we're all aware of the "daily" time scale of the news programs, which is too short. And I think we're all aware of the dynamics similar to those for hit tunes or fashions, the periods of six months to two years during which "everyone says," until, flip! "everyone" says something else and forgets they ever said the first thing. So that's too short.

But there is no right time scale. I recently had a PM discussion with someone about "the historical real return of the U.S. stock market." I'd said it was "about 7%" knowing that the correct number for the time period I had in mind was more like 6.7% but willing to round for casual thinking purposes. He said "But it isn't, it's only 6%." We were sincere and interested in resolving the discrepancy, and the explanation surprised both of us. I was using the classic CRSP-based numbers which start in 1926. He was using some international source, one of the Dimson and Marsh studies, and for some reason the numbers he was looking at started in 1928. Yes: for the total U.S. stock market, a 2-year difference in one endpoint made a difference of almost 1% in annualized return even over an 85-year-long period

To me, that says that my brother and I, born two years apart, could easily experience annualized differences of over 1% in just about any stock investment, just through the chance of when we were born. In that context, I seriously question the real-world importance of portfolio differences whose historic returns have differences measured in basis points. It's quite within the realm of possibility that we could both add the same tilt, and over our investment lifetimes that same tilt might help him and hurt me or vice versa.

But it gets worse. We all know that periods of up to 10 or 20 years don't mean anything, because for whatever reason, predictably or not, various asset classes experience periods of outperformance or underperformance that can last that long. But over 20 years, there start to be serious questions of "whether you can step twice into the same river."

I just do not think it is credible that the stock market of the 1920s, the first period ever when there was widespread sale of common stocks to the general public and a "bull" meant someone who was making stocks rise, follows the same quantitative model as it does in the world of the SEC, the Investment Company Act of 1940, the end of fixed commissions, the rise of the 401(k), and HFT.

As for emerging markets, what can you possibly say about long-term data for emerging markets? The term wasn't even coined until the 1980. The first index wasn't created until 1988. A 25-year period, is that a statistical sample of anything? Of what? Can we step twice into the same river? In 1988, Japan was thought to be well on the way to outcompeting the U.S (Michael Crichton's novel, "Rising Sun," was published in 1992.") China was there, but as a footnote, not as a big deal.

Time scales? As we've seen, even 1926-2013 might not be enough, but in the case of Emerging Markets it's impossible, there isn't that long a data set. 1988-2013 is both too short (not a big enough statistical sample) and too long (too many things have changed too much over that period of time).

What's the right time scale for looking at Emerging Markets? Anyone want to state a number and make a case for it?
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Re: Sub-emerging Markets: All that's left is the crying

Postby Noobvestor » Thu Jun 13, 2013 10:10 am

nisiprius wrote:To me, that says that my brother and I, born two years apart, could easily experience annualized differences of over 1% in just about any stock investment, just through the chance of when we were born. In that context, I seriously question the real-world importance of portfolio differences whose historic returns have differences measured in basis points. It's quite within the realm of possibility that we could both add the same tilt, and over our investment lifetimes that same tilt might help him and hurt me or vice versa.


I've posted this more times than I can count ... but here we go again:

Image

Basis points? I don't think so. Pick the right country, you get 7% returns. Pick the wrong one, you get 2%. Personally, I'd rather take the middle road. I can't control start and end points, but I *can* limit my dispersion of potential returns via low-cost, tax-efficient diversification both between and within asset classes.

What's the right time scale for looking at Emerging Markets? Anyone want to state a number and make a case for it?


Who knows? Who cares? I just want to hold some stocks in countries that don't have other risk/reward profiles, and aren't subject (to the same degree, at least) to the same country-specific political, economic and geographical risks as my human capital. If over the course of my lifetime these have lower returns, so be it. Don't confuse outcome with strategy.

nisiprius wrote:
Random Musings wrote:I betcha emerging market index outperforms domestic index over the next 5 to ten years.
Sure. More risk, more return. The question is whether holding emerging market index does anything very different from simply boosting your domestic stock allocation to the point where you get the same level of risk.


We know it does something different, because of the above graphic showing the dispersion of returns for different national markets. You cut the risk that your country underperforms, and trade that off with the possibility that it will outperform.
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Re: Sub-emerging Markets: All that's left is the crying

Postby Random Musings » Thu Jun 13, 2013 10:28 am

nisiprius wrote:
Random Musings wrote:...For me, I have emerging market exposure which provides diversification in my equity positions. I have a slight tilt in international towards emerging, but only slightly away from TISM. I prefer holding total market positions where there are some correlation differences than just ramping up more domestic....
And yet this source is showing an 0.91 five-year correlation between iShares Emerging Markets and Vanguard Large-Cap Stock Index, so "where's the beef?"

As nearly as I can tell, a lot of "correlation" talk seems to be about very short term fluctuations that are probably just sampling error. (It takes a very large sample to get an accurate estimate of correlation).

Have you got any sources that actually show meaningfully low long-term correlation between Emerging Markets and plain old S&P 500 or U.S. total market?

(Added) Found a paper that talks about the elephant in the room, Emphasizing Low-Correlated Assets:
The Volatility of Correlation
. He actually looks at how consistent or inconsistent correlations are, and according to him, as of 2007, the correlation between Emerging Markets and the S&P 500 has fluctuated between 0.25 and 0.93 and he judges it simply to be "inconsistent."

According to him, no pairs of stock asset classes are consistently low. In every pair that are consistently low, one member of the pair is a non-stock class: U. S. bonds, global bonds, cash, natural resources, or "long-short." (Interestingly, real estate does not have consistently low correlation with any stock classes).

And that's as of 2007, and all the talk seems to indicate that correlations have, if anything, risen since then, so I don't think the chart would look very different today.


I'd still rather diversify. Perhaps correlations will continue to stay at 0.90, perhaps not. However, if you don't diversify, you are making the bet that correlations will remain high as well as having specific country risk. Correlations don't necessarily stay the same all the time, since inception of Vanguard EM, there have been some differences between EM and S&P 500, although the correlation has been closer as you mentioned more recently. Perhaps the worldwide banking crisis and worldwide government intervention actions afterwards has driven correlations up. I'll stick with world-wide diversification.

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

Postby nisiprius » Thu Jun 13, 2013 11:50 am

Noobvestor wrote:...I've posted this more times than I can count ... but here we go again:

Image
I think those are all developed markets. I was addressing the question of what we know about so-called "emerging markets." Which are really defined by a negative, despite the marketing name; all that emerging markets have in common is what they aren't (developed).

Noob, I thought you were an advocate of total world investing according to world market cap. Are you an advocate for overweighting emerging markets?
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Re: Sub-emerging Markets: All that's left is the crying

Postby baw703916 » Thu Jun 13, 2013 12:15 pm

nisiprius wrote:
Noobvestor wrote:...I've posted this more times than I can count ... but here we go again:

Image
I think those are all developed markets. I was addressing the question of what we know about so-called "emerging markets." Which are really defined by a negative, despite the marketing name; all that emerging markets have in common is what they aren't (developed).

Noob, I thought you were an advocate of total world investing according to world market cap. Are you an advocate for overweighting emerging markets?


The one emerging market is South Africa, which is one of the few countries to outperform the U.S. Japan is developed now, but I'm not sure about Japan in 1900--IIRC that was only a few decades after it opened up to the outside world, roughly analogous to China today.

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

Postby Noobvestor » Thu Jun 13, 2013 2:51 pm

nisiprius wrote:I think those are all developed markets. I was addressing the question of what we know about so-called "emerging markets." Which are really defined by a negative, despite the marketing name; all that emerging markets have in common is what they aren't (developed).


Correct - it features mainly or entirely developed markets, depending on where you draw the line (and/or when you draw it). But if anything, that strengthens rather than diminishing my point - if you have that kind of dispersion within what we consider developed markets, the potential variety of outcomes in the global market including more volatile and divergent emerging is even greater, making the case for investing in emerging markets even more compelling. See Bernstein for data: http://www.efficientfrontier.com/ef/400/rebal400.htm - as you can see, they have at least one thing in common: a broader dispersion of returns.

nisiprius wrote:Noob, I thought you were an advocate of total world investing according to world market cap. Are you an advocate for overweighting emerging markets?


Good question. I am absolutely an advocate of total-world investing as the starting point. It troubles me when people ask 'how much international should I add?' because it suggests a starting point of entirely-US allocations. The only reason I can see to not do this is currency, but we've been through that debate and I still contend currency risk cuts both ways, but is also ultimately a smaller factor than most people realize.

That said, I personally am overweight in emerging markets, small cap and value stocks on the equity side. On the bond side, I am overweight in US bonds (zero international) and within US, I am heavily tilted toward TIPS and tax-exempt bonds. Overall, I am also lighter on stocks than most people my age. All of these tilts are to some degree situational (net worth, tax reasons, human capital, tail risks, etc...).

But back to your question: my default position is to advocate a simple diversified approach, like a three-fund portfolio - something that is 'close enough' to global market weights, simple enough to stick to, and so forth. But for people (like me) who want to diversify home-country risks further, tilting toward emerging markets can be absolutely sensible, as long as the reasoning is right and the tilts kept within reason. But like all tilts, it should be recognized as a tilt. I know I tilt toward emerging markets - I do so intentionally. But many people don't seem to realize that they tilt heavily toward the US market, because they still see a mostly- or entirely-US portfolio as the starting point.
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Re: Sub-emerging Markets: All that's left is the crying

Postby kenschmidt » Thu Jun 13, 2013 8:57 pm

Not to discount the discussion around "how long is long enough" - which is a valid question - but 10 year annualized return for Vanguard Emerging Markets Investor class is 13.47%. That said, I hadn't realized that the 5 year annualized return has gone negative until I just now looked.
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Re: Sub-emerging Markets: All that's left is the crying

Postby madbrain » Thu Jun 13, 2013 9:45 pm

Looks like VWO is up 2.3% today. I guess a few members of the BH forum must have driven up the price !
Mine are still down 9.2% though. I first bought on 3/5/12 . My average cost per share is $44.45 . It's held in 401k.
I'm leaving it alone. I'm in it for more than 1-2 years .
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Re: Sub-emerging Markets: All that's left is the crying

Postby grap0013 » Fri Jun 14, 2013 12:01 am

nisiprius wrote:And yet this source is showing an 0.91 five-year correlation between iShares Emerging Markets and Vanguard Large-Cap Stock Index, so "where's the beef?"


That correlation coefficient is just showing the direction. What is often forgotten is the magnitude which is very important as it smooths long term returns. Case in point: Two investments A and B.

A returns:
2010: 2%
2011: -10%
2012: 12%

B returns:
2010: 9%
2011: -8%
2012: 3%

Correlations are high, but I'd much rather have a mix of A and B rather than just one of them. Large differences in magnitude of returns is alive and kicking even post 2008.
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Re: Sub-emerging Markets: All that's left is the crying

Postby nedsaid » Fri Jun 14, 2013 12:56 am

Looked at one of my Emerging Market funds and it is definitely down. Ouch!!

But this is what Emerging Markets do. This is a volatile asset class. It is an asset class worth owning, I am staying in for the long term.

It also shows the importance of not overdoing the very volatile asset classes. I am specifically talking about REITs, Emerging Markets, and Small Cap Value. They are great diversifiers and put the tiger in your tank. Too much and you could blow up your portfolio.
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GMO Predictions for EM: +6% Real Return

Postby StoneReader » Fri Jun 14, 2013 9:11 am

For what it is worth, GMO (05/31/2013) is predicting +6.2% REAL equity returns for emerging market equities over the next 7 years, the highest return of any asset class that they consider. They base their projections on the Gordon Equation and a return to historical average valuations for the asset class in question.

International developed equity markets have a projected real return of +2.5% and US equity markets have a projected negative real return of -2.5%. The real return on cash is zero and bonds have a negative projected real return of about -1%.

In the past, an asset was usually a good buy when their projected Real returns were above 10%.
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Re: GMO Predictions for EM: +6% Real Return

Postby Random Musings » Fri Jun 14, 2013 11:56 am

StoneReader wrote:For what it is worth, GMO (05/31/2013) is predicting +6.2% REAL equity returns for emerging market equities over the next 7 years, the highest return of any asset class that they consider. They base their projections on the Gordon Equation and a return to historical average valuations for the asset class in question.

International developed equity markets have a projected real return of +2.5% and US equity markets have a projected negative real return of -2.5%. The real return on cash is zero and bonds have a negative projected real return of about -1%.

In the past, an asset was usually a good buy when their projected Real returns were above 10%.


Take into consideration that these forecasts have a wide range of error, which used to be on the forecast sheets. However, I believe history has shown that the relative rankings of his returns (not the actual return percentages) have been pretty decent.

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

Postby Dulocracy » Fri Jun 14, 2013 12:32 pm

Thankfully, my personal investment statement limits emerging markets to 10% of my portfolio. Since I am 34 years to retirement, I will keep it as is (I think 7.5% currently), but I appreciate the article.
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Re: Sub-emerging Markets: All that's left is the crying

Postby Grt2bOutdoors » Fri Jun 14, 2013 12:38 pm

On one hand, my international/emerging allocation is holding down my overall returns this year - the benefits of diversification. :|
On the other hand, I'm picking up more shares cheaply as I cry. :D
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Re: Sub-emerging Markets: All that's left is the crying

Postby MnD » Sat Jun 15, 2013 2:28 pm

Speaking of emerging markets, a new member to the club earlier this week! Maybe they need to make a submerging markets index.

Financial index provider MSCI Inc. MSCI -0.52% cut Greece to emerging-markets status from developed markets Tuesday. MSCI said that Greece failed to qualify as a developed market on several criteria, including securities borrowing and lending facilities. The firm had put Greece under review to become classified as an emerging market in June 2012.
http://blogs.wsj.com/moneybeat/2013/06/ ... ng-market/
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Re: Sub-emerging Markets: All that's left is the crying

Postby Rodc » Sat Jun 15, 2013 9:17 pm

I have about 7% in emerging bonds. It is up 9.65% over the last 10 years. Down this year. Something is always winning in the short term and something is always losing.

My domestic stocks are up this year. International not so much. Emerging bonds are down. US bonds are flat. Year to date annualized is about 9%. Just about an average year.

Things are fine.

I think I'll leave them alone.
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Re: Sub-emerging Markets: All that's left is the crying

Postby nisiprius » Sat Jun 15, 2013 9:20 pm

Rodc wrote:I have about 7% in emerging bonds. It is up 9.65% over the last 10 years. Down this year. Something is always winning in the short term and something is always losing.

My domestic stocks are up this year. International not so much. Emerging bonds are down. US bonds are flat. Year to date annualized is about 9%. Just about an average year.

Things are fine.

I think I'll leave them alone.
But wouldn't they be better than fine if you simply got rid of the losers and only held the winners? <---Irony. :wink:
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Re: Sub-emerging Markets: All that's left is the crying

Postby Call_Me_Op » Sat Jun 29, 2013 8:03 am

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

Postby livesoft » Sat Jun 29, 2013 8:20 am

VEIEX/VWO (vanguard emerging markets large-cap index) had a RBD on June 20th about a week after this thread started. As we all know, RBDs seem to flag buying opportunities. I certainly bought some VWO and DGS this week* with "dry powder" from VCSH. Didn't everybody?
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*I may sell next week if my goal of a short-term 5% gain is reached.
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Re: Sub-emerging Markets: All that's left is the crying

Postby abuss368 » Sat Jun 29, 2013 8:26 am

Very good points.

Thank you Rick.
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Re: Sub-emerging Markets: All that's left is the crying

Postby InvestorNewb » Sat Jun 29, 2013 8:34 am

Total International already has 18.90% Emerging Markets, so I don't see a need for me personally to own anymore of this asset class. That is already quite high, imo.
Current Holdings: VTI, VXUS, VNQ, VCE (largest to smallest)
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Re: Sub-emerging Markets: All that's left is the crying

Postby Call_Me_Op » Sat Jun 29, 2013 9:41 am

InvestorNewb wrote:Total International already has 18.90% Emerging Markets, so I don't see a need for me personally to own anymore of this asset class. That is already quite high, imo.


Already quite high by what measure? That is about equal to its representation in the market.
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Re: Sub-emerging Markets: All that's left is the crying

Postby InvestorNewb » Sat Jun 29, 2013 10:11 am

Call_Me_Op wrote:
InvestorNewb wrote:Total International already has 18.90% Emerging Markets, so I don't see a need for me personally to own anymore of this asset class. That is already quite high, imo.


Already quite high by what measure? That is about equal to its representation in the market.


Assuming someone holds a 50/50 us/int'l split, then emerging markets (in total int'l) makes up around 10% of the equity portfolio. It seems to me that is already a reasonable weighting. Maybe "high" wasn't the right word to use.
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Re: Sub-emerging Markets: All that's left is the crying

Postby Call_Me_Op » Sat Jun 29, 2013 10:15 am

InvestorNewb wrote:
Call_Me_Op wrote:
InvestorNewb wrote:Total International already has 18.90% Emerging Markets, so I don't see a need for me personally to own anymore of this asset class. That is already quite high, imo.


Already quite high by what measure? That is about equal to its representation in the market.


Assuming someone holds a 50/50 us/int'l split, then emerging markets (in total int'l) makes up around 10% of the equity portfolio. It seems to me that is already a reasonable weighting. Maybe "high" wasn't the right word to use.


Indeed. And some people have more than that in order to "tilt" their portfolio. Nothing wrong with that either if you know what you are doing.
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