Is Emerging Markets the only game in town?

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Erwin
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Is Emerging Markets the only game in town?

Post by Erwin » Thu Dec 10, 2015 11:56 am

Are Emerging Markets the only game in town? Inker from GMO seems to think so. Please read...

https://www.gmo.com/docs/default-source ... f?sfvrsn=4
Erwin

Elysium
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Re: Is Emerging Markets the only game in town?

Post by Elysium » Thu Dec 10, 2015 12:20 pm

I stopped bothering about short term forecasts made by GMO. Yes, 7 years is a very short time period and is not very useful. Looking at past 10 year returns we have the following for the broad market index funds.
  • VTSMX 7.31%
    VGTSX 3.01%
    VEIEX 3.52%
    VBMFX 4.5%
Looks like except the US stock and bond markets are at their historical averages, nothing excessive. Foreign developed and EM looks below long term averages. If we keep expectations lower than historcal mean and focus on savings rate there is no need to worry about such forecasts. Be prepared to give back some of the gains made during this past 5 year recovery period, and we should revert back to the mean in the long run.

Erwin
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Re: Is Emerging Markets the only game in town?

Post by Erwin » Thu Dec 10, 2015 12:36 pm

I cannot dispute your comments, personally I hold the global market, but if you believe that stock indexes return to mean, and that the PE10s of Emerging Markets are way below historical average,then there is more than a compelling reason to believe that eventually they will do better than developed markets, specially the US. When? Who knows
Erwin

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saltycaper
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Re: Is Emerging Markets the only game in town?

Post by saltycaper » Thu Dec 10, 2015 12:51 pm

I tilt to EM and so I have noticed the headlines lately about what a great buy EM is currently. Can't help but wonder though, if so many think it's a great time to buy EM, how can it be a great time to buy EM? Oh, well. Maintaining my tilt regardless.
Quod vitae sectabor iter?

john94549
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Re: Is Emerging Markets the only game in town?

Post by john94549 » Thu Dec 10, 2015 4:20 pm

I have a modest tilt to EM. That said, it's a long-term investment.

rkhusky
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Re: Is Emerging Markets the only game in town?

Post by rkhusky » Thu Dec 10, 2015 4:52 pm

All my new money seems to be going to EM to maintain allocation. I hope its not going down a black hole, never to be seen again. EM is down close to 50% from it's highs in 2007.

Elysium
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Re: Is Emerging Markets the only game in town?

Post by Elysium » Thu Dec 10, 2015 5:31 pm

mpt follower wrote:I cannot dispute your comments, personally I hold the global market, but if you believe that stock indexes return to mean, and that the PE10s of Emerging Markets are way below historical average,then there is more than a compelling reason to believe that eventually they will do better than developed markets, specially the US. When? Who knows
EM looks well below average, but this has happened before, IIRC EM historical returns for past 10 years were something like 3% back in the early 2000s. Then there was a 5 year period or so of exceptional performance, and now we again have a 10 year period with that 3% to 4% range. I have held between 7% and 10% of the overall portfolio in EM for a while now and intends to keep it that way, buying when it is low and selling when it goes above the threshold. Beyond that we cannot use it for anything like increasing allocation beyond our target with the hope of excess returns. Been there and done that and in the end made no difference to my portfolio compared to a static allocation either way.

grog
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Re: Is Emerging Markets the only game in town?

Post by grog » Thu Dec 10, 2015 6:17 pm

I'm underweight EM more or less by accident. (My work 401K only has Developed Market Index and I hold Total International in my IRA). I haven't given it much focus, but the more I think about it, the less appealing I find it. I'm not really sure I want to be investing with Russian oligarchs, for example. A lot of these markets are corrupt. The thinking seems to be that these countries have better growth potential and are "due," but I'm not so sure, plus it's not a given that public companies domiciled in those countries will perform that well in any case. I was tempted to dump it but didn't bother since it's only 2% of my overall portfolio. And ultimately I guess all my concerns should be priced in. Plus as noted it's been tanking, so at least it seems like a decent value compared to domestic.

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Robert T
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Re: Is Emerging Markets the only game in town?

Post by Robert T » Fri Dec 11, 2015 3:27 am

.
Here are GMO's 7-year nominal returns forecasts from 7-years ago (adding their forecast 2.5% inflation to their real returns).

US Large Cap = 9.6%
Emerging Markets = 12.4%

Actual return over this period:

US Large Cap (VFINX) = 14.9%
Emerging Markets (VWO) = 7.0%

Emerging markets may well outperform going forward (or not), and GMO forecast may be correct going forward (or not). After a good start http://www.economist.com/node/11870287 , their batting average has gone down. No guarantees.

Robert
.

Erwin
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Re: Is Emerging Markets the only game in town?

Post by Erwin » Fri Dec 11, 2015 4:27 am

Robert T wrote:.
Here are GMO's 7-year nominal returns forecasts from 7-years ago (adding their forecast 2.5% inflation to their real returns).

US Large Cap = 9.6%
Emerging Markets = 12.4%

Actual return over this period:

US Large Cap (VFINX) = 14.9%
Emerging Markets (VWO) = 7.0%

Emerging markets may well outperform going forward (or not), and GMO forecast may be correct going forward (or not). After a good start http://www.economist.com/node/11870287 , their batting average has gone down. No guarantees.


Robert
.
GMO should not be taken blindly, but evaluations, PE (or better PE10), has been a good, not perfect, indicator of long term performance. And in my view is just about the only meaningful tool for those that tilt and hope positive results. I do not tilt simply because I do not need to stretch (i.e., take additional risk) to meet my goals, but if I needed, I would certainly do it.
I own 10% of my equity portfolio in EMs, that is about the global market allocation according to most studies and will stay there. My annual mechanical rebalancing take care of evaluations.
Erwin

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