Performance of International

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
SpartanBull
Posts: 127
Joined: Fri Jun 06, 2014 12:31 am

Performance of International

Postby SpartanBull » Sat Dec 31, 2016 5:16 pm

I've never really understood something about international. There is definitely a group that makes that argument that you "don't need international"...seemingly implying that the it performs similar enough that theres not a big diversification benefit. At the same time, I've seen people post charts that show alarmingly similar returns (I'm also certain I saw one of these from nispirius once. I don't recall what position he was supporting on the matter, but all I know is he was illustrating on a graph how close together the lines were and how similar the performance of US and International were).
That being said, I constantly here about Internationals substantial underperformance lately, International being on sale, etc etc.
So essentially, my questions is this, WHICH IS IT? If international is doing poorly lately, (and US stocks are obviously doing very well lately), that seems to imply that they do perform differently, and that there is a diversification benefit. How can there be this argument that US has plenty of International in it, so you're covered with just US Stock Market...While the returns of international has been very different?

livesoft
Posts: 53256
Joined: Thu Mar 01, 2007 8:00 pm

Re: Performance of International

Postby livesoft » Sat Dec 31, 2016 5:26 pm

I guess it depends on which International you want to be International about. In 2016, some emerging markets funds did fantastic while some large-cap funds, not so fantastic.
This signature message sponsored by sscritic: Learn to fish.

brad.clarkston
Posts: 451
Joined: Fri Jan 03, 2014 8:31 pm
Location: Kansas City, MO

Re: Performance of International

Postby brad.clarkston » Sat Dec 31, 2016 5:57 pm

It's murkier than that in 2016 some non-US EM Small-cap did better than non-US Large-Cap. Some non-US large-cap did alright as well.

At one time I was heavily weighted to non-US EM but it became way too painful for me to stomach so I'm just in VXUS now. Granted the pain stopped a few (4-5?) years ago, and I'm thinking about adding in more non-US again ... a glutton I suppose.

Call_Me_Op
Posts: 6412
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: Performance of International

Postby Call_Me_Op » Sun Jan 01, 2017 9:37 am

SpartanBull wrote:I've never really understood something about international. There is definitely a group that makes that argument that you "don't need international"...seemingly implying that the it performs similar enough that theres not a big diversification benefit.


In my mind, that's not the point. If you tell me I can invest in 50 baskets or just 1, and my expected return is about the same in both cases, I will pick 50 baskets every time. It is about broad diversification to avoid a catastrophic outcome.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

arsenalfan
Posts: 311
Joined: Mon Dec 09, 2013 12:26 am

Re: Performance of International

Postby arsenalfan » Sun Jan 01, 2017 9:42 am

Callan table is what I inevitably return to when i wonder why 25% of my stocks are international indexes.

There's lots of great reasoning by thought leaders, which all sound very convincing to me - in either direction.

Callan table showing no rhyme or reason to which category wins consistently has convinced me to diversify. Obviously not entirely else I'd be 50/50...

larryswedroe
Posts: 15497
Joined: Thu Feb 22, 2007 8:28 am
Location: St Louis MO

Re: Performance of International

Postby larryswedroe » Sun Jan 01, 2017 11:29 am

Simple answer is that over the long term they have performed similarly. And that is what you should expect given the freedom of capital to flow around the globe. With that said, they tend to also perform even more similarly during systemic crises as they are all impacted by the same risks in similar ways. But, once the crises end their performances tend to diverge and you can have very wide differences in returns. And that leads to the diversification benefit as no one knows which will outperform in future.

If the world was so flat as many argue how do you get periods like say 2003-2007 when EAFE returned about 2x total return of S&P and EMV returned about 7x? And then you have periods like 2009-16 when US far outperforms. Clearly the investment world is not that flat or you could not see these type divergences. And those divergences provide diversification benefits.

Also there is the simple logic of not having all your eggs, or even the vast majority in one economic and geopolitical risk basket, especially when the risk basket may also contain your largest asset (especially for young workers), your labor capital, though it's not on your balance sheet and thus often incorrectly overlooked.

I hope that is helpful
Larry

User avatar
JoMoney
Posts: 3836
Joined: Tue Jul 23, 2013 5:31 am

Re: Performance of International

Postby JoMoney » Sun Jan 01, 2017 12:30 pm

SpartanBull wrote:... WHICH IS IT? If international is doing poorly lately, (and US stocks are obviously doing very well lately), that seems to imply that they do perform differently, and that there is a diversification benefit. How can there be this argument that US has plenty of International in it, so you're covered with just US Stock Market...While the returns of international has been very different?

Taylor Larimore will often say, "When experts disagree, it is often because it makes no foreseeable difference."
Most 'experts' seem to suggest some amount of international, but there are a few people who still maintain it's just not necessary.
If you want the diversification of simply owning more stocks, it certainly does that. If you expect lower standard deviation but similar returns, I'd offer that there are time periods this has worked, and other periods where it has not and adding any amount of international has both decreased returns and increased the standard deviation. If you're expecting that you'll be averaging out of an asset that is high priced into an asset that is low priced and it will eventually change course and you'll get something extra for the effort... there's problems with that to. The "benefit" only shows up at the points in time when the assets converge, when they inevitably diverge again you'll see that "benefit" disappear as you keep taking money out of your best performer and dump it into the worst performer. The "benefit" is period dependent and may come and go over a long period of investing.
In general, stocks are so noisy and volatile that even if you do manage to eek out some extra return or lower standard deviation over whatever period you're looking at you may very well not even notice unless you take the time to carefully measure and compare your specific equity allocation relative to some other equity allocation.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

Whakamole
Posts: 318
Joined: Wed Jan 13, 2016 9:59 pm

Re: Performance of International

Postby Whakamole » Sun Jan 01, 2017 12:41 pm

The problem is that much of the questioning of international seems to be based on recent performance. If recent performance of international had been stellar, I don't think we'd see this many threads regardless of Bogle's position on whether foreign stocks belong in your portfolio.

If it's performance-based, then you run the risk of investors avoiding international because of poor performance (e.g. it's cheap) and getting back into it when it's done well (e.g. it's expensive), then selling it again after a period of underperformance. Buy high, sell low.

That's the value of the IPS. If it says invest in international, you buy even after periods of underperformance. If it says only domestic, you avoid international even if it takes off like a rocket.

If I put "no international" in my IPS, I would not trust myself to not want to revisit that if international started doing better than domestic. So I invest in international.

columbia
Posts: 418
Joined: Tue Aug 27, 2013 5:30 am

Re: Performance of International

Postby columbia » Sun Jan 01, 2017 12:45 pm

If one has no international and seeks to, this would be an excellent time to rebalance into 20-40% VXUS.

SpartanBull
Posts: 127
Joined: Fri Jun 06, 2014 12:31 am

Re: Performance of International

Postby SpartanBull » Thu Jan 05, 2017 2:11 am

Columbia, why do you mentioned that now would be a good time? Is that because international has performed worse recently?

Cyclesafe
Posts: 256
Joined: Wed Dec 31, 2014 1:03 pm
Location: San Diego

Re: Performance of International

Postby Cyclesafe » Thu Jan 05, 2017 7:05 am

No, because the US$ is at a 14 year high. But it comes down to governance to me. I'm content to ride it out at 28% currently and am not hankering to add more. OTOH, I won't sell until I reach 50% of total equity, probably through gliding down equity throughout retirement......

Valuethinker
Posts: 30901
Joined: Fri May 11, 2007 11:07 am

Re: Performance of International

Postby Valuethinker » Thu Jan 05, 2017 7:43 am

If you invest more international now you are, generally, reducing your exposure to tech and healthcare and upping it to things like basic materials.

That's as a general pattern given the heavy weighting in US index towards tech & healthcare (especially the former).


Return to “Investing - Theory, News & General”

Who is online

Users browsing this forum: alinm, Bing [Bot], bzcat, columbia, KarenC, Lathund, marekc, pileitup, Selu Gadu, TinkerPDX, West of Chicago and 55 guests