Larry Swedroe: Why Emerging Markets Matter

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Dottie57
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Re: Larry Swedroe: Why Emerging Markets Matter

Post by Dottie57 » Tue Oct 09, 2018 10:04 am

I have 30% of stock allocation in Fidelity’s total stock fund which includes EM and small cap. I want t own them in order to own the haystack.

jalbert
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Re: Larry Swedroe: Why Emerging Markets Matter

Post by jalbert » Tue Oct 09, 2018 12:56 pm

I see. Well let's just throw this in the international is lousy bin.

1995-2018 CAGR:
10.18% US
6.11% EM
5.02% Intl Developed ex-US
Yes, the unwinding of the Japanese equity bubble hit DM even worse in the 90’s. Non-US DM has a much longer history than EM (much longer than for US equities) and periods where the diversification to non-US equities by US investors was beneficial can be identified historically.

It may be true that EM provides similar diversification benefits. It also may be true that EM will enjoy a higher future return than US equities, but this cannot be reproduced reliably with historical returns without the use of market timing.
Risk is not a guarantor of return.

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Re: Larry Swedroe: Why Emerging Markets Matter

Post by garlandwhizzer » Tue Oct 09, 2018 1:24 pm

gtwhitegold wrote:

Lower correlations with US equities and greater expected returns are why I personally am overweight EM relative to IDM in my IPS. If this actually benefits me in the long run is yet to be seen.
1+

Me too. EM are so volatile that they're hard to hang on during their too frequent collapses. There are some fundamental reasons to believe that tolerating this volatility will eventually be rewarded although, as with factors, active management, or any other strategy that seeks to outperform, the future offers no guarantees. If your goal is to maximize future returns and you're willing to tolerate increased volatility, I agree with Larry that it's a mistake to avoid EM completely. It's less clear in my mind whether cap weight exposure or overweighting beaten down EM is the best approach.

Garland Whizzer

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Re: Larry Swedroe: Why Emerging Markets Matter

Post by inbox788 » Tue Oct 09, 2018 2:20 pm

HomerJ wrote:
Mon Oct 08, 2018 8:57 am
onthecusp wrote:
Mon Oct 08, 2018 8:54 am
Taylor Larimore wrote:
Mon Oct 08, 2018 8:31 am
Bogleheads:

Vanguard Total Stock Market Index Fund contains:
20.60% Emerging Markets
42.50% Europe
29.60% Pacific
0.40% Middle East
6.60% North America
0.30% Other
Strive for simplicity (read link below).

Best wishes.
Taylor
I had no idea that TSM was so underweighted in North America!
That seems like a massive tilt away from home for North American investors.
I'm pretty sure he meant Total International Stock Market Index Fund
That would be my assumption as well. Now non-US North America is mainly Canada and Mexico. Are there any others? Some small island, maybe Caymans or Bahamas where some multinational incorporated? Then again, I still considered Mexico among the Emerging Markets, so it could be solely Canada.
Random Walker wrote:
Mon Oct 08, 2018 7:58 am
Over long term EM has outperformed US. EM is more risky, long periods of underperformance, different types of risk, market prices risk well, and EM less than perfectly correlated with US.
“Peace is the break between two wars.”

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Re: Larry Swedroe: Why Emerging Markets Matter

Post by nisiprius » Tue Oct 09, 2018 3:03 pm

How much would emerging markets mattered, in the context of a whole portfolio, and considering the intrinsic uncertainty of the returns of the portfolio as a whole?

Part 1: Introduction, Appendix: Methodology Brief notes: 1) In these Monte Carlo simulations, the return for a given month is varied by randomly choosing the actual historical return or the actual historic return for an adjacent month. 2) They show the final value from $100 monthly contributions made over the whole time period. 4) Green and red crosses mark actual historical values. 5) Green and red bars show the 10% percentile, median, and 90% percentile of the range of outcomes. 5) The actual data source is PortfolioVisualizer.com, Backtest Portfolio, Monthly Returns; this is used as calculation input; and no PV content or numeric values are directly reproduced.
The crosses and centerpoints are what they are. They are subject to all the issues and problems of comparing two portfolios over one specific period in time. They have exactly the same endpoint issues of all such comparisons. These charts do not help decide which portfolio is better than another, or how much better. Their purpose to compare the size of the difference between portfolios to the general variability of the portfolio. They are based on Monte Carlo simulations of random walks around the historical data. The value of this approach has been questioned; see discussion

The "ten-fund portfolio with EM" is the "moderate" 60/40 model portfolio from the 1998 edition of The Only Guide To Winning Investment Strategy You'll Ever Need: Index Funds and Beyond--The Way Smart Money Creates Wealth Today, with reasonable DFA funds chosen to represent his named asset classes. The "ten-fund portfolio without EM" is the same portfolio with DFEMX removed and the remaining nine funds normalized to add up to 100%. That is:

Ten-fund portfolio with emerging markets removed (i.e. only nine funds)

DFELX DFA Enhanced US Large Company I 10.57%
DFLVX DFA US Large Cap Value I 10.52%
DFSTX DFA US Small Cap I 5.26%
DFSVX DFA US Small Cap Value I 15.78%
DFREX DFA Real Estate Securities I 5.26%
DFALX DFA Large Cap International I 10.52%
DFIGX DFA Intermediate Govt Fixed-Income I 10.52%
DFFGX DFA Short-Term Government I 21.05%
DFGBX DFA Five-Year Global Fixed-Income I 10.52%

Ten-fund portfolio as presented in 1998, including emerging markets

DFELX DFA Enhanced US Large Company I 10.00%
DFLVX DFA US Large Cap Value I 10.00%
DFSTX DFA US Small Cap I 5.00%
DFSVX DFA US Small Cap Value I 15.00%
DFREX DFA Real Estate Securities I 5.00%
DFALX DFA Large Cap International I 10.00%
DFEMX DFA Emerging Markets I 5.00%
DFIGX DFA Intermediate Govt Fixed-Income I 10.00%
DFFGX DFA Short-Term Government I 20.00%
DFGBX DFA Five-Year Global Fixed-Income I 10.00%

Here's how much the inclusion of emerging markets would have mattered, in the context of a whole portfolio, and including a simulation of how much scatter there might have been in the overall performance:

Image
Last edited by nisiprius on Thu Oct 11, 2018 10:13 am, edited 1 time in total.
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Re: Larry Swedroe: Why Emerging Markets Matter

Post by jhfenton » Tue Oct 09, 2018 3:16 pm

Random Walker wrote:
Mon Oct 08, 2018 9:26 am
I like your rebalancing beliefs, and my inclinations are the same. But my understanding is that it is generally more efficient to incorporate an asset class or tilt into a total market or core fund when possible. Thus I think it is more efficient to incorporate EM into a core fund, and then if want additional EM beyond what the fund holds, add a smaller amount of an EM fund. This allows internal rebalancing with other people’s money rather than your own, and avoids buying and selling when an EM country graduates out of the EM asset class. For example DFA has created a new fund that combines International small value and emerging markets, DFA World Ex US Targeted Value: DWUSX. I believe VG did something similar when it incorporated EM into an International fund.

In general it is most efficient for investors to use cheaper total market or core funds as much as possible, and then tilt to taste with smaller amounts of the more expensive asset class funds.

Dave
1. As a practical matter, I do hold total international funds beyond my EM funds. It is mostly VSS (Vanguard FTSE All-World ex-US Small Cap)--which is a total international small-cap fund--but I am now adding to VTIAX (Vanguard Total International Admiral) in my wife's 401(k).

2. I don't think countries graduate between emerging and developed markets often enough for internal rebalancing to make a material difference.
arcticpineapplecorp. wrote:
Mon Oct 08, 2018 7:10 pm
So what am I missing about rebalancing being different holding the funds separately than altogether?
Total international funds don't have fixed allocations to emerging and developed markets. They let them float. If developed markets surged and emerging tanked, the EM share could drop from 20% to 10%. Vice versa, and EM could rise to 30% or more.

I personally overweight EM. Our equities are 50% US/50% ex-US. The ex-US is currently comprised of 1.2% VTIAX, 28.7% VSS, and 20.0% pure EM. If you count the EM in VTIAX and VSS, we're a bit above 25% of equities in EM.

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Re: Larry Swedroe: Why Emerging Markets Matter

Post by gtwhitegold » Wed Oct 10, 2018 8:59 pm

nedsaid wrote:
Tue Oct 09, 2018 9:54 am
gtwhitegold wrote:
Mon Oct 08, 2018 8:46 pm
Lower correlations with US equities and greater expected returns are why I personally am overweight EM relative to IDM in my IPS. If this actually benefits me in the long run is yet to be seen.
This is why I made the comment that Emerging Markets are the new REITs. I remember seeing data back in 2007 that REITs had a bit higher returns than the S&P 500 with low correlation. The perfect diversifier. Wonder how long before the academics sour on Emerging Markets just as they seemingly have soured on REITs. Hope this isn't flavor of the month.
Nothing is perfect and I accept that I'm taking more risk. There is also a non-trivial chance that EM equities will not pan out in the long run. Only time will tell if my strategy will pay off. I never really got started using REITs, so I had rather just include them in other funds that I already hold.

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Re: Larry Swedroe: Why Emerging Markets Matter

Post by Elysium » Wed Oct 10, 2018 9:51 pm

When going through my own historic return analysis of EM, I have noticed something that hasn't been discussed before here or brought up by any of the experts. The money weighted (IRR) returns are much smaller than the time weighted returns. This means if you have been purchasing through regular contributions over the years, as I have been during certain periods of accumulation, then you earned less because of the extreme volatility of distributions. This is counterintuitive as you would think that you are purchasing low, and in fact I have been purchasing lower during several periods. However, the large short duration spikes in positive returns followed by long periods of negative years, causes money weighted returns to be lower. I am not sure what is the financial theory or math behind this.

That makes EM even more of a lousy investment suitable only for lump sum investment that is ideally paired with a safer investment like high quality bonds and re-balanced annually. It appears that doing so boosted the time weighted returns by 50 bps, however the IRR remained lower.

See here three portfolios, one with EM value alone, another with TSM, and 3rd one 50/50 EM value + high quality bonds. The TSM portfolio had better IRR, possibly because the distributions are less volatile.

https://www.portfoliovisualizer.com/ba ... ion3_3=50

You could change the time periods to go back further and also play around with different asset mixes, but it does seem like EM has this unique problem, and most of the other assets seems to do well with regular periodic contributions, and in case of EM it hurts.

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Re: Larry Swedroe: Why Emerging Markets Matter

Post by mortal » Wed Oct 10, 2018 10:15 pm

I have about 50% of my equities in international stocks, because I wanted to be as diversified as possible and avoid a japan scenario. Of that, I'm overweight EM by 10%. I've held this asset allocation for about 10 years now, patiently waiting for the high returns that supposedly accompany their high risk. It's been a decade, and I'm still waiting. From a layman's perspective, you'd think EM would be going gangbusters with the incredible growth of India and China, but nope. At this point, I'm in a bit of a sunk cost fallacy. I've been disappointed by them for so long that surely their lower CAPE values will eventually reward me with higher returns. It's a matter of time. Should only be another couple of decades I promise! :annoyed

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Re: Larry Swedroe: Why Emerging Markets Matter

Post by Elysium » Wed Oct 10, 2018 10:34 pm

mortal wrote:
Wed Oct 10, 2018 10:15 pm
I have about 50% of my equities in international stocks, because I wanted to be as diversified as possible and avoid a japan scenario. Of that, I'm overweight EM by 10%. I've held this asset allocation for about 10 years now, patiently waiting for the high returns that supposedly accompany their high risk. It's been a decade, and I'm still waiting. From a layman's perspective, you'd think EM would be going gangbusters with the incredible growth of India and China, but nope. At this point, I'm in a bit of a sunk cost fallacy. I've been disappointed by them for so long that surely their lower CAPE values will eventually reward me with higher returns. It's a matter of time. Should only be another couple of decades I promise! :annoyed
Well .. in my case there was the 92% return in 2009 and the 78% in 2004, and in fact 2004-07 annualized returns were 36% per year, and overall 15 year returns (IRR) is something like 8% annualized. These are nothing to scoff at, but much lower than US returns since 2009. Structurally something has gone wrong it seems with EM, or perhaps it was always like this. What do I know, I am ony invested in it for 15 years.

Hang in there, those outsized returns are coming .. may be :|

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Re: Larry Swedroe: Why Emerging Markets Matter

Post by nedsaid » Thu Oct 11, 2018 1:14 am

gtwhitegold wrote:
Wed Oct 10, 2018 8:59 pm
nedsaid wrote:
Tue Oct 09, 2018 9:54 am
gtwhitegold wrote:
Mon Oct 08, 2018 8:46 pm
Lower correlations with US equities and greater expected returns are why I personally am overweight EM relative to IDM in my IPS. If this actually benefits me in the long run is yet to be seen.
This is why I made the comment that Emerging Markets are the new REITs. I remember seeing data back in 2007 that REITs had a bit higher returns than the S&P 500 with low correlation. The perfect diversifier. Wonder how long before the academics sour on Emerging Markets just as they seemingly have soured on REITs. Hope this isn't flavor of the month.
Nothing is perfect and I accept that I'm taking more risk. There is also a non-trivial chance that EM equities will not pan out in the long run. Only time will tell if my strategy will pay off. I never really got started using REITs, so I had rather just include them in other funds that I already hold.
I want to make it clear that I have been invested in Emerging Markets for a long time. I also have retained my REIT investments.
A fool and his money are good for business.

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Re: Larry Swedroe: Why Emerging Markets Matter

Post by stupidkid » Thu Oct 11, 2018 9:29 am

Question I've been pondering relevant to this thread - I've held a ~30% allocation to International for about 10 years (started following bogleheads about 10 years ago). My international portfolio allocation has been:

10% - VEU, All-World ex-US ETF
10% - VWO, Emerging Markets
10% - VSS, All-Wld ex-US SmCp

I TLH'd on my international funds in August into SPDW (SPDR Portfolio World x/US, commission free in TDA - not a perfect proxy for all the funds but close enough) and am now trying to decide if I should:

A) Sell SPDW entirely and reallocate across VEU, VWO, and VSS to my target allocation.
B) Sell SPDW entirely and reallocate into my Total Stock (VTI)
C) Keep SPDW or sell SPDW and allocate entirely into International (VEU) (I view these two as the same outcome given the correlation).

Option C would mean, per my IPS, I'm essentially overweight in total international (VEU + SPDW) and under in Emerging and Small Cap. But when I wrote my IPS, I didn't appreciate/understand how much international was in total stock, and how much emerging was already in International. The correlation between all my international funds is fairly high, which leaves me asking if there's value in such "diversification"?

I know this is a thread that has strong proponents on either side, and the two answers are basically "Stick to my IPS" <or> "Change your IPS". I suppose I'm revisiting my IPS and using this thread as a sounding board...

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Re: Larry Swedroe: Why Emerging Markets Matter

Post by typical.investor » Thu Oct 11, 2018 9:33 am

I would choose A. Stick to your plan for the sake of it.

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Re: Larry Swedroe: Why Emerging Markets Matter

Post by JBTX » Thu Oct 11, 2018 9:58 am

reformed.trader wrote:
Mon Oct 08, 2018 8:53 pm
All 10y return forecasts I have seen, based on current valuations, have EM returning ~6% real whereas, US is ~1% real. Why in the world would I want to hold 4x more US than EM like I get in the total world stock market. As a result, I am heavily overweight EM(~50%) and heavily underweight US(~15%). I believe we are at extreme relative valuation differences.
This is the what Grantham / GMO has been saying. I know he isn't popular here but I always find their research and writings interesting even I mostly don't act on them. Their dilemma is their EM projections are far better than anything else. But the downside is they are extremely volatile, and if you believe the markets are overvalued, as they do, then EM will short term fall harder and farther in spite of better relative valuations, especially given their high shorter term correlation to the US. So their strategy is to overweight them, but not to the degree their relative valuations would typically lead them to do.

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Re: Larry Swedroe: Why Emerging Markets Matter

Post by nisiprius » Thu Oct 11, 2018 10:17 am

jhfenton wrote:
Tue Oct 09, 2018 3:16 pm
...2. I don't think countries graduate between emerging and developed markets often enough for internal rebalancing to make a material difference...
Which, of course, obviously contradicts the premise behind the phrase "emerging markets." It also contradicts the frequently-expressed sentiment that "these fast-growing economies," all of them, taken as a group, are virtually certain to have yield higher stock market returns than developed markets.
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Re: Larry Swedroe: Why Emerging Markets Matter

Post by vineviz » Thu Oct 11, 2018 1:58 pm

nisiprius wrote:
Thu Oct 11, 2018 10:17 am
jhfenton wrote:
Tue Oct 09, 2018 3:16 pm
...2. I don't think countries graduate between emerging and developed markets often enough for internal rebalancing to make a material difference...
Which, of course, obviously contradicts the premise behind the phrase "emerging markets."
[/quote]

It doesn't. Why do you think it does?
nisiprius wrote:
Thu Oct 11, 2018 10:17 am
It also contradicts the frequently-expressed sentiment that "these fast-growing economies," all of them, taken as a group, are virtually certain to have yield higher stock market returns than developed markets.
Again, there's no contradiction. Why do you think there is?
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Larry Swedroe: Why Emerging Markets Matter

Post by Random Walker » Thu Oct 11, 2018 2:18 pm

nisiprius wrote:
Thu Oct 11, 2018 10:17 am
jhfenton wrote:
Tue Oct 09, 2018 3:16 pm
...2. I don't think countries graduate between emerging and developed markets often enough for internal rebalancing to make a material difference...
Which, of course, obviously contradicts the premise behind the phrase "emerging markets." It also contradicts the frequently-expressed sentiment that "these fast-growing economies," all of them, taken as a group, are virtually certain to have yield higher stock market returns than developed markets.
People have a propensity to overpay for growth, whether it’s at the individual stock level or at the country level.

Dave

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Re: Larry Swedroe: Why Emerging Markets Matter

Post by tinscale » Thu Oct 11, 2018 5:24 pm

onthecusp wrote:
Mon Oct 08, 2018 8:54 am
Taylor Larimore wrote:
Mon Oct 08, 2018 8:31 am
Bogleheads:

Vanguard Total Stock Market Index Fund contains:
20.60% Emerging Markets
42.50% Europe
29.60% Pacific
0.40% Middle East
6.60% North America
0.30% Other
Strive for simplicity (read link below).

Best wishes.
Taylor
I had no idea that TSM was so underweighted in North America!
That seems like a massive tilt away from home for North American investors.
In other words, that 6.6% is Canada.

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Re: Larry Swedroe: Why Emerging Markets Matter

Post by tinscale » Thu Oct 11, 2018 5:28 pm

Mr. Swedroe's next post should be interesting:

"In my next post, I'll examine the evidence on whether active management is the winning strategy in emerging markets."

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Re: Larry Swedroe: Why Emerging Markets Matter

Post by MJW » Thu Oct 11, 2018 5:39 pm

tinscale wrote:
Thu Oct 11, 2018 5:28 pm
Mr. Swedroe's next post should be interesting:

"In my next post, I'll examine the evidence on whether active management is the winning strategy in emerging markets."
He has written on the topic previously:

https://www.etf.com/sections/index-inve ... rket-flaws

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Re: Larry Swedroe: Why Emerging Markets Matter

Post by nisiprius » Thu Oct 11, 2018 5:58 pm

vineviz wrote:
Thu Oct 11, 2018 1:58 pm
nisiprius wrote:
Thu Oct 11, 2018 10:17 am
jhfenton wrote:
Tue Oct 09, 2018 3:16 pm
...2. I don't think countries graduate between emerging and developed markets often enough for internal rebalancing to make a material difference...
Which, of course, obviously contradicts the premise behind the phrase "emerging markets."
It doesn't. Why do you think it does?
The objective description of these markets is "less developed markets," which simply states a fact without implying any future. It doesn't, however, sound terribly appealing to suggest that investors should invest in "less developed markets." In the 1980s, people began referring to them as "emerging" markets. This suggests that they are in the process of "emerging," that is to say becoming developed markets. If countries do not constantly "graduate" from "emerging" to "developed," then they were not, in fact, "emerging" after all.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: Larry Swedroe: Why Emerging Markets Matter

Post by HEDGEFUNDIE » Thu Oct 11, 2018 6:26 pm

nisiprius wrote:
Thu Oct 11, 2018 5:58 pm
vineviz wrote:
Thu Oct 11, 2018 1:58 pm
nisiprius wrote:
Thu Oct 11, 2018 10:17 am
jhfenton wrote:
Tue Oct 09, 2018 3:16 pm
...2. I don't think countries graduate between emerging and developed markets often enough for internal rebalancing to make a material difference...
Which, of course, obviously contradicts the premise behind the phrase "emerging markets."
It doesn't. Why do you think it does?
The objective description of these markets is "less developed markets," which simply states a fact without implying any future. It doesn't, however, sound terribly appealing to suggest that investors should invest in "less developed markets." In the 1980s, people began referring to them as "emerging" markets. This suggests that they are in the process of "emerging," that is to say becoming developed markets. If countries do not constantly "graduate" from "emerging" to "developed," then they were not, in fact, "emerging" after all.
Of course they’re emerging, just look at GDP growth rates of the top 10 EM countries and compare with the top 10 DM countries.

Whether or when any particular EM country can catch up with the DM crowd is another question.

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Re: Larry Swedroe: Why Emerging Markets Matter

Post by MJW » Thu Oct 11, 2018 6:30 pm

HEDGEFUNDIE wrote:
Thu Oct 11, 2018 6:26 pm
Whether or when any particular EM country can catch up with the DM crowd is another question.
Yeah, given enough time maybe they'll end up not doing anything either. :P

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Re: Larry Swedroe: Why Emerging Markets Matter

Post by vineviz » Thu Oct 11, 2018 6:42 pm

nisiprius wrote:
Thu Oct 11, 2018 5:58 pm
vineviz wrote:
Thu Oct 11, 2018 1:58 pm
nisiprius wrote:
Thu Oct 11, 2018 10:17 am
jhfenton wrote:
Tue Oct 09, 2018 3:16 pm
...2. I don't think countries graduate between emerging and developed markets often enough for internal rebalancing to make a material difference...
Which, of course, obviously contradicts the premise behind the phrase "emerging markets."
It doesn't. Why do you think it does?
The objective description of these markets is "less developed markets," which simply states a fact without implying any future. It doesn't, however, sound terribly appealing to suggest that investors should invest in "less developed markets." In the 1980s, people began referring to them as "emerging" markets. This suggests that they are in the process of "emerging," that is to say becoming developed markets. If countries do not constantly "graduate" from "emerging" to "developed," then they were not, in fact, "emerging" after all.
There aren't very many countries in the world for countries to be "constantly" moving from the emerging markets index to the developed markets index. In the past 20 years, though, three countries (Portugal, Greece, and Israel) have moved from MSCI's emerging markets classification to developed markets. Only one country (Greece again) got demoted to "emerging", so the directionality implied by the terms seems to be accurate to me.

I agree with jhfenton that this pace is not enough to cause the typical investor to worry about rebalancing effects, but it would be incorrect to imply that the lack of movement makes the whole premise of market classification "contradicted".
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Larry Swedroe: Why Emerging Markets Matter

Post by gtwhitegold » Thu Oct 11, 2018 7:21 pm

nedsaid wrote:
Thu Oct 11, 2018 1:14 am
gtwhitegold wrote:
Wed Oct 10, 2018 8:59 pm
nedsaid wrote:
Tue Oct 09, 2018 9:54 am
gtwhitegold wrote:
Mon Oct 08, 2018 8:46 pm
Lower correlations with US equities and greater expected returns are why I personally am overweight EM relative to IDM in my IPS. If this actually benefits me in the long run is yet to be seen.
This is why I made the comment that Emerging Markets are the new REITs. I remember seeing data back in 2007 that REITs had a bit higher returns than the S&P 500 with low correlation. The perfect diversifier. Wonder how long before the academics sour on Emerging Markets just as they seemingly have soured on REITs. Hope this isn't flavor of the month.
Nothing is perfect and I accept that I'm taking more risk. There is also a non-trivial chance that EM equities will not pan out in the long run. Only time will tell if my strategy will pay off. I never really got started using REITs, so I had rather just include them in other funds that I already hold.
I want to make it clear that I have been invested in Emerging Markets for a long time. I also have retained my REIT investments.
I understand. I've just never been compelled to have a strategic allocation to REITs. I held VNQ several years ago before I actually developed a strategy for my investments.

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Re: Larry Swedroe: Why Emerging Markets Matter

Post by abuss368 » Thu Oct 11, 2018 7:33 pm

Emerging Markets are included in Total International Stock. Unless an overweight is desired there is no need for the additional fund.

Keep investing simple.
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Re: Larry Swedroe: Why Emerging Markets Matter

Post by golfCaddy » Thu Oct 11, 2018 10:23 pm

Larry is cherry picking the data. Dimson-Marsh data shows emerging markets under-performed developed over the long run.

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Re: Larry Swedroe: Why Emerging Markets Matter

Post by fennewaldaj » Fri Oct 12, 2018 12:30 am

nisiprius wrote:
Thu Oct 11, 2018 5:58 pm
vineviz wrote:
Thu Oct 11, 2018 1:58 pm
nisiprius wrote:
Thu Oct 11, 2018 10:17 am
jhfenton wrote:
Tue Oct 09, 2018 3:16 pm
...2. I don't think countries graduate between emerging and developed markets often enough for internal rebalancing to make a material difference...
Which, of course, obviously contradicts the premise behind the phrase "emerging markets."
It doesn't. Why do you think it does?
The objective description of these markets is "less developed markets," which simply states a fact without implying any future. It doesn't, however, sound terribly appealing to suggest that investors should invest in "less developed markets." In the 1980s, people began referring to them as "emerging" markets. This suggests that they are in the process of "emerging," that is to say becoming developed markets. If countries do not constantly "graduate" from "emerging" to "developed," then they were not, in fact, "emerging" after all.
They can have a fast growth rate for a long time before they actually catch developed countries. Developed countries are growing too. Take China. It has been growing rapidly for 40 years and still is a fair bit short of the income per capita for the average developed country. Now whether fast growth translates into better equity gains is another matter.

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Lauretta
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Re: Larry Swedroe: Why Emerging Markets Matter

Post by Lauretta » Fri Oct 12, 2018 3:08 am

I know this is probably not a 'Bogleheadish' way of looking at things, but I read an article by Ray Dalio on US-China relations (and the risks involved in the possible scenarios that may play out) which concludes:
While there will be ebbs and flows in the relationship, as far as the symmetry of the surprises goes, it seems to me that they are more asymmetrical on the downside relative to what the market is discounting. As this is happening in the later stages of both the short-term and long-term debt cycles while central banks are tightening with the duration of assets long (because interest rates are so low), this is an environment in which we prefer to have a risk-off posture.
So whilst Emerging markets matter for the reasons outlined by Mr Swedroe; and whilst valuations seem attractive, according to Dalio there might be particular risks involved in investing in China (and perhaps even in the US?) not discounted by the market if the tensions between US and China escalate.
When everyone is thinking the same, no one is thinking at all

KJVanguard
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Re: Larry Swedroe: Why Emerging Markets Matter

Post by KJVanguard » Fri Oct 12, 2018 3:25 am

Random Walker wrote:
Mon Oct 08, 2018 9:26 am
For example DFA has created a new fund that combines International small value and emerging markets, DFA World Ex US Targeted Value: DWUSX. I believe VG did something similar when it incorporated EM into an International fund.

In general it is most efficient for investors to use cheaper total market or core funds as much as possible, and then tilt to taste with smaller amounts of the more expensive asset class funds.

Dave
I agree with Dave. Vanguard does incorporate about 20% EM into VSS (FTSE All-World ex-US Small-Cap Fund).

Vanguard has yet to give us International Small Value (though we sure can keep asking!) With their "total market is God theology," it's amazing enough that Vanguard was able to hold their nose and produce VSS for us.

I own DGS as part of my EM allocation (in addition to Vanguard Emerging Markets which I have held since 1995) as I was attracted to EM small cap dividend (where dividends are really just a different way of measuring Value, as opposed to P/B or P/E or price to sales, etc.).

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Lauretta
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Re: Larry Swedroe: Why Emerging Markets Matter

Post by Lauretta » Fri Oct 12, 2018 3:55 am

KJVanguard wrote:
Fri Oct 12, 2018 3:35 am

The US looks risky with a leader who makes the nightly news by Tweeting anything & everything that pops into his head, regularly offending some group. I even hear Russia picks our President! And everybody except said president seems aware of this. See any risk at home?
Yes, I do see risk in the US, though it's not my home; indeed I am significantly underweight in US equities. I used to think Europe is less risky, because of lower valuations, but then my own home country (I am Italian) might be at the origin of the next european crisis, so only God knows which place is safest...
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typical.investor
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Re: Larry Swedroe: Why Emerging Markets Matter

Post by typical.investor » Fri Oct 12, 2018 5:08 am

Lauretta wrote:
Fri Oct 12, 2018 3:55 am
KJVanguard wrote:
Fri Oct 12, 2018 3:35 am

The US looks risky with a leader who makes the nightly news by Tweeting anything & everything that pops into his head, regularly offending some group. I even hear Russia picks our President! And everybody except said president seems aware of this. See any risk at home?
Yes, I do see risk in the US, though it's not my home; indeed I am significantly underweight in US equities. I used to think Europe is less risky, because of lower valuations, but then my own home country (I am Italian) might be at the origin of the next european crisis, so only God knows which place is safest...
Yeah and in my paragraph previously on global worries and if we should consider stocks on sale on sale I didn't even mention Italy's brazen defiance of the EU. At least that's what I read - concern the EU will be broken from within.

Or maybe it will be an improvement and EU austerity needs to be challenged.

It's not difficult to see the risk to equities here. (of course I am still buying, don't get me wrong but I understand that what I am buying is priced to reflect the perception of risks and prospective economic returns as determined by the sum of market participants).

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Re: Larry Swedroe: Why Emerging Markets Matter

Post by nedsaid » Sat Oct 13, 2018 11:15 pm

gtwhitegold wrote:
Thu Oct 11, 2018 7:21 pm
nedsaid wrote:
Thu Oct 11, 2018 1:14 am
gtwhitegold wrote:
Wed Oct 10, 2018 8:59 pm
nedsaid wrote:
Tue Oct 09, 2018 9:54 am
gtwhitegold wrote:
Mon Oct 08, 2018 8:46 pm
Lower correlations with US equities and greater expected returns are why I personally am overweight EM relative to IDM in my IPS. If this actually benefits me in the long run is yet to be seen.
This is why I made the comment that Emerging Markets are the new REITs. I remember seeing data back in 2007 that REITs had a bit higher returns than the S&P 500 with low correlation. The perfect diversifier. Wonder how long before the academics sour on Emerging Markets just as they seemingly have soured on REITs. Hope this isn't flavor of the month.
Nothing is perfect and I accept that I'm taking more risk. There is also a non-trivial chance that EM equities will not pan out in the long run. Only time will tell if my strategy will pay off. I never really got started using REITs, so I had rather just include them in other funds that I already hold.
I want to make it clear that I have been invested in Emerging Markets for a long time. I also have retained my REIT investments.
I understand. I've just never been compelled to have a strategic allocation to REITs. I held VNQ several years ago before I actually developed a strategy for my investments.
Well, I have been guilty of buying what I liked and coming up with a justification for it later.
A fool and his money are good for business.

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