Can Quality Save International Stocks?

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kosomoto
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Can Quality Save International Stocks?

Post by kosomoto »

I, like many Bogleheads, have been underwhelmed and disappointed by international stock returns.

However, I found an index that screens for quality (high Return-on-Equity (ROE), low leverage and low earnings variability) and that index, since 2005, has dramatically outperformed the total international market in every time frame (since inception, ten years, five years, three years). This index is the MSCI World ex USA Sector Neutral Quality Index, and trades under the ETF IQLT. Could this solve the problem of having dramatic underperformance? 15 years of outperformance is a fairly good sign, yes?

Link to fact sheet of the index: https://www.msci.com/documents/10199/60 ... 10a0ee15a4

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Also - why can't I post an image? Trying to put https://pasteboard.co/JnbG62C.png in the Image brackets but it just says 'Image' in the final post.
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JoMoney
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Re: Can Quality Save International Stocks?

Post by JoMoney »

Probably not, these things tend to play out differently then looking backwards.

Your image is probably too large, and the site you're trying to host it on probably doesn't allow you to link to it propperly.

Try another site, I think postimages.org works pretty well, especially for posting here, doesn't require any kind of 'sign-up', and his nice features like being able to 'resize' an image that is otherwise too big.
https://i.postimg.cc/fy9yJ7WC/a49a7290- ... 7c1211.png
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typical.investor
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Re: Can Quality Save International Stocks?

Post by typical.investor »

kosomoto wrote: Wed Aug 19, 2020 11:25 pm I, like many Bogleheads, have been underwhelmed and disappointed by international stock returns.

However, I found an index that screens for quality (high Return-on-Equity (ROE), low leverage and low earnings variability) and that index, since 2005, has dramatically outperformed the total international market in every time frame (since inception, ten years, five years, three years). This index is the MSCI World ex USA Sector Neutral Quality Index, and trades under the ETF IQLT. Could this solve the problem of having dramatic underperformance? 15 years of outperformance is a fairly good sign, yes?

Link to fact sheet of the index: https://www.msci.com/documents/10199/60 ... 10a0ee15a4

Image

Also - why can't I post an image? Trying to put https://pasteboard.co/JnbG62C.png in the Image brackets but it just says 'Image' in the final post.
Well developed Intl Quality valuations have risen to the point that future expected returns are -2% relative to the market. EM is a little more attractive at -0.50% but still too expensive for me.

Of course, that doesn't mean Quality can't go on to outperform for the next 10 years. It's only 90th percentile now if these measures are to be believed (oops that is for EM. Dev Intl is even more expensive):

https://interactive.researchaffiliates. ... lot=aggval

https://interactive.researchaffiliates. ... lot=aggval
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jeffyscott
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Re: Can Quality Save International Stocks?

Post by jeffyscott »

JoMoney wrote: Wed Aug 19, 2020 11:40 pmYour image is probably too large, and the site you're trying to host it on probably doesn't allow you to link to it propperly.
I don't think it's too large, as I always get a message when that is the case.

I use imgur, FWIW. But that's just because it's convenient, since when I do a screen shot, I get "host on imgur" as one option (using Linux).
Robot Monster
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Re: Can Quality Save International Stocks?

Post by Robot Monster »

If Bogleheads are "underwhelmed and disappointed by international stock returns," then do you know what can save international stocks? How about lower expectations.
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kosomoto
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Re: Can Quality Save International Stocks?

Post by kosomoto »

typical.investor wrote: Wed Aug 19, 2020 11:49 pm
kosomoto wrote: Wed Aug 19, 2020 11:25 pm I, like many Bogleheads, have been underwhelmed and disappointed by international stock returns.

However, I found an index that screens for quality (high Return-on-Equity (ROE), low leverage and low earnings variability) and that index, since 2005, has dramatically outperformed the total international market in every time frame (since inception, ten years, five years, three years). This index is the MSCI World ex USA Sector Neutral Quality Index, and trades under the ETF IQLT. Could this solve the problem of having dramatic underperformance? 15 years of outperformance is a fairly good sign, yes?

Link to fact sheet of the index: https://www.msci.com/documents/10199/60 ... 10a0ee15a4

Image

Also - why can't I post an image? Trying to put https://pasteboard.co/JnbG62C.png in the Image brackets but it just says 'Image' in the final post.
Well developed Intl Quality valuations have risen to the point that future expected returns are -2% relative to the market. EM is a little more attractive at -0.50% but still too expensive for me.

Of course, that doesn't mean Quality can't go on to outperform for the next 10 years. It's only 90th percentile now if these measures are to be believed (oops that is for EM. Dev Intl is even more expensive):

https://interactive.researchaffiliates. ... lot=aggval

https://interactive.researchaffiliates. ... lot=aggval
I'm not sure I buy the fact quality is expensive based on valuations. The IQLT PE is at 18.79 for the fund (and every company is profitable) whereas total international is 15.68 and that PE excludes companies that aren't profitable so it would actually probably be pretty similar in PE.
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Re: Can Quality Save International Stocks?

Post by Walkure »

kosomoto wrote: Wed Aug 19, 2020 11:25 pm I, like many Bogleheads, have been underwhelmed and disappointed by international stock returns.

However, I found an index that screens for quality (high Return-on-Equity (ROE), low leverage and low earnings variability) and that index, since 2005, has dramatically outperformed the total international market in every time frame (since inception, ten years, five years, three years). This index is the MSCI World ex USA Sector Neutral Quality Index, and trades under the ETF IQLT. Could this solve the problem of having dramatic underperformance? 15 years of outperformance is a fairly good sign, yes?
Without doing any backtesting or factor regressions whatsoever, I'll hazard a guess that the outperformance has little to do with the quality screen and nearly everything to do with the "sector neutral" weighting. The entire US-Intl gap is essentially a reflection of the relative US tilt toward Big Tech, so an international fund with a higher-than-market-cap allocation to tech would naturally do well over the same period. Can tech continue to outperform going forward?
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Re: Can Quality Save International Stocks?

Post by kosomoto »

Walkure wrote: Thu Aug 20, 2020 12:37 pm
kosomoto wrote: Wed Aug 19, 2020 11:25 pm I, like many Bogleheads, have been underwhelmed and disappointed by international stock returns.

However, I found an index that screens for quality (high Return-on-Equity (ROE), low leverage and low earnings variability) and that index, since 2005, has dramatically outperformed the total international market in every time frame (since inception, ten years, five years, three years). This index is the MSCI World ex USA Sector Neutral Quality Index, and trades under the ETF IQLT. Could this solve the problem of having dramatic underperformance? 15 years of outperformance is a fairly good sign, yes?
Without doing any backtesting or factor regressions whatsoever, I'll hazard a guess that the outperformance has little to do with the quality screen and nearly everything to do with the "sector neutral" weighting. The entire US-Intl gap is essentially a reflection of the relative US tilt toward Big Tech, so an international fund with a higher-than-market-cap allocation to tech would naturally do well over the same period. Can tech continue to outperform going forward?
Except IQLT has a lower allocation to tech then total international (8 percent compared to 11) so I'm confused by your statement. IQLT clearly is outperforming with a lower allocation to tech.
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Re: Can Quality Save International Stocks?

Post by Walkure »

kosomoto wrote: Thu Aug 20, 2020 1:58 pm
Walkure wrote: Thu Aug 20, 2020 12:37 pm
kosomoto wrote: Wed Aug 19, 2020 11:25 pm I, like many Bogleheads, have been underwhelmed and disappointed by international stock returns.

However, I found an index that screens for quality (high Return-on-Equity (ROE), low leverage and low earnings variability) and that index, since 2005, has dramatically outperformed the total international market in every time frame (since inception, ten years, five years, three years). This index is the MSCI World ex USA Sector Neutral Quality Index, and trades under the ETF IQLT. Could this solve the problem of having dramatic underperformance? 15 years of outperformance is a fairly good sign, yes?
Without doing any backtesting or factor regressions whatsoever, I'll hazard a guess that the outperformance has little to do with the quality screen and nearly everything to do with the "sector neutral" weighting. The entire US-Intl gap is essentially a reflection of the relative US tilt toward Big Tech, so an international fund with a higher-than-market-cap allocation to tech would naturally do well over the same period. Can tech continue to outperform going forward?
Except IQLT has a lower allocation to tech then total international (8 percent compared to 11) so I'm confused by your statement. IQLT clearly is outperforming with a lower allocation to tech.
Serves me right for assuming a fund's composition based on the name :oops: Turns out sector neutral means something like "not substantially diverging from the actual international sector weights."
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Re: Can Quality Save International Stocks?

Post by beardsicles »

This thread got me interested in IQLT and international quality screens. This thread's one of the few discussing it, but boy howdy in retrospect choosing IQLT over VTIAX would have paid off since OP made this post.

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Re: Can Quality Save International Stocks?

Post by Cocoa Beach Bum »

beardsicles wrote: Tue Apr 02, 2024 10:41 am This thread got me interested in IQLT and international quality screens. This thread's one of the few discussing it, but boy howdy in retrospect choosing IQLT over VTIAX would have paid off since OP made this post.
...
If only you'd chosen a better international quality ETF than IQLT:
https://www.portfoliovisualizer.com/fun ... meBQDh5AzD
Last edited by Cocoa Beach Bum on Tue Apr 02, 2024 11:28 am, edited 1 time in total.
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Re: Can Quality Save International Stocks?

Post by dkturner »

Robot Monster wrote: Thu Aug 20, 2020 9:55 am If Bogleheads are "underwhelmed and disappointed by international stock returns," then do you know what can save international stocks? How about lower expectations.
Do you mean applying the Efficient Market Hypothesis to international stocks? It would seem that international stocks have experienced lower returns than U.S. stocks because international markets are different than U.S. Markets, and that’s not likely to change overnight.
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Re: Can Quality Save International Stocks?

Post by beardsicles »

Cocoa Beach Bum wrote: Tue Apr 02, 2024 11:26 am
beardsicles wrote: Tue Apr 02, 2024 10:41 am This thread got me interested in IQLT and international quality screens. This thread's one of the few discussing it, but boy howdy in retrospect choosing IQLT over VTIAX would have paid off since OP made this post.
...
If only you'd chosen a better international quality ETF than IQLT:
https://www.portfoliovisualizer.com/fun ... meBQDh5AzD
Yeah, Fidelity’s quality international mutual fund too. Couple decades of data at this point. IHDG is compelling but the ER would make most folks here blanch. And the easy/lazy answer is to point at the PEs to explain the difference in performance.
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Re: Can Quality Save International Stocks?

Post by jeffyscott »

beardsicles wrote: Tue Apr 02, 2024 11:38 am
Cocoa Beach Bum wrote: Tue Apr 02, 2024 11:26 am
beardsicles wrote: Tue Apr 02, 2024 10:41 am This thread got me interested in IQLT and international quality screens. This thread's one of the few discussing it, but boy howdy in retrospect choosing IQLT over VTIAX would have paid off since OP made this post.
...
If only you'd chosen a better international quality ETF than IQLT:
https://www.portfoliovisualizer.com/fun ... meBQDh5AzD
Yeah, Fidelity’s quality international mutual fund too. Couple decades of data at this point. IHDG is compelling but the ER would make most folks here blanch. And the easy/lazy answer is to point at the PEs to explain the difference in performance.
It doesn't really seem to be about "quality". Schwab fundamental International (SFNNX) beat them both over that time frame. And International developed (EAFE via SWISX) nearly matched IQLT:

Image
https://www.portfoliovisualizer.com/fun ... bAfJWwjeEA
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Re: Can Quality Save International Stocks?

Post by beardsicles »

jeffyscott wrote: Tue Apr 02, 2024 12:35 pm
beardsicles wrote: Tue Apr 02, 2024 11:38 am
Cocoa Beach Bum wrote: Tue Apr 02, 2024 11:26 am
beardsicles wrote: Tue Apr 02, 2024 10:41 am This thread got me interested in IQLT and international quality screens. This thread's one of the few discussing it, but boy howdy in retrospect choosing IQLT over VTIAX would have paid off since OP made this post.
...
If only you'd chosen a better international quality ETF than IQLT:
https://www.portfoliovisualizer.com/fun ... meBQDh5AzD
Yeah, Fidelity’s quality international mutual fund too. Couple decades of data at this point. IHDG is compelling but the ER would make most folks here blanch. And the easy/lazy answer is to point at the PEs to explain the difference in performance.
It doesn't really seem to be about "quality". Schwab fundamental International (SFNNX) beat them both over that time frame. And International developed (EAFE via SWISX) nearly matched IQLT:

Image
https://www.portfoliovisualizer.com/fun ... bAfJWwjeEA
Yeah, FDIVX does even better. Quality might just be a screen for “large and developed”

Edit: IQLT and FNDF’s relative performance might support this, although their holdings are quite different.
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Re: Can Quality Save International Stocks?

Post by alex_686 »

dkturner wrote: Tue Apr 02, 2024 11:27 am
Robot Monster wrote: Thu Aug 20, 2020 9:55 am If Bogleheads are "underwhelmed and disappointed by international stock returns," then do you know what can save international stocks? How about lower expectations.
Do you mean applying the Efficient Market Hypothesis to international stocks? It would seem that international stocks have experienced lower returns than U.S. stocks because international markets are different than U.S. Markets, and that’s not likely to change overnight.
And how does this violate EMH?

Hint, international stocks uses lower leverage than US firms. Lower leverage means lower expected returns but also lower volatility. Also, the sectors tend to be in the lower growth, steady returns variety.
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Re: Can Quality Save International Stocks?

Post by Beensabu »

jeffyscott wrote: Tue Apr 02, 2024 12:35 pm It doesn't really seem to be about "quality".
"Quality" is just a word for "various fundamental measures of our choice". That's what it means when you see that word tacked onto a fund name. Look how wildly different the strategies are:

IQLT - "large- and mid-cap developed international stocks exhibiting positive fundamentals (high return on equity, stable year-over-year earnings growth and low financial leverage)"

IHDG - "dividend-paying companies with growth characteristics in the developed world ex the U.S. and Canada while hedging exposure to fluctuations between the U.S. dollar and foreign currencies"

SFNNX - "primarily invests in stocks that are included in the Russell RAFI Developed ex US Large Company Index" - "the Russell RAFI™ Index Series methodology selects and weights securities using the average of three fundamental measures of company size including adjusted sales, retained operating cash flow and dividends plus buybacks"
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Re: Can Quality Save International Stocks?

Post by dkturner »

alex_686 wrote: Tue Apr 02, 2024 1:22 pm
dkturner wrote: Tue Apr 02, 2024 11:27 am
Robot Monster wrote: Thu Aug 20, 2020 9:55 am If Bogleheads are "underwhelmed and disappointed by international stock returns," then do you know what can save international stocks? How about lower expectations.
Do you mean applying the Efficient Market Hypothesis to international stocks? It would seem that international stocks have experienced lower returns than U.S. stocks because international markets are different than U.S. Markets, and that’s not likely to change overnight.
And how does this violate EMH?

Hint, international stocks uses lower leverage than US firms. Lower leverage means lower expected returns but also lower volatility. Also, the sectors tend to be in the lower growth, steady returns variety.
It doesn’t. International returns are lower because international stocks are less valuable for a variety of reasons. I was implying that if you believe in the EMH you should already have much lower expectations for the performance of international stocks, because they’re priced according to their actual value at any given point in time. And, if you have much lower expectations for the performance of international stocks, why own them in the first place?
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Re: Can Quality Save International Stocks?

Post by alex_686 »

dkturner wrote: Tue Apr 02, 2024 2:24 pm It doesn’t. International returns are lower because international stocks are less valuable for a variety of reasons. I was implying that if you believe in the EMH you should already have much lower expectations for the performance of international stocks, because they’re priced according to their actual value at any given point in time. And, if you have much lower expectations for the performance of international stocks, why own them in the first place?
Can you give me one of these various reasons?
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Re: Can Quality Save International Stocks?

Post by triz »

International stocks don't really need to be saved -- they'll eventually have their day in the sun. But I would definitely lean towards value and momentum instead of market cap weighted.
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Re: Can Quality Save International Stocks?

Post by jeffyscott »

Beensabu wrote: Tue Apr 02, 2024 1:25 pm
jeffyscott wrote: Tue Apr 02, 2024 12:35 pm It doesn't really seem to be about "quality".
"Quality" is just a word for "various fundamental measures of our choice". That's what it means when you see that word tacked onto a fund name. Look how wildly different the strategies are:

IQLT - "large- and mid-cap developed international stocks exhibiting positive fundamentals (high return on equity, stable year-over-year earnings growth and low financial leverage)"

IHDG - "dividend-paying companies with growth characteristics in the developed world ex the U.S. and Canada while hedging exposure to fluctuations between the U.S. dollar and foreign currencies"

SFNNX - "primarily invests in stocks that are included in the Russell RAFI Developed ex US Large Company Index" - "the Russell RAFI™ Index Series methodology selects and weights securities using the average of three fundamental measures of company size including adjusted sales, retained operating cash flow and dividends plus buybacks"
My point was that SFNNX is not targeting quality. It actually scores low on quality according to Morningstar.
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Re: Can Quality Save International Stocks?

Post by Beensabu »

jeffyscott wrote: Tue Apr 02, 2024 10:04 pm My point was that SFNNX is not targeting quality. It actually scores low on quality according to Morningstar.
They all score low (or negative) on quality according to PV factor regression. SFNNX does have a value loading.

"Fundamental" is the same thing as "Quality" in a fund name. Some kind of a screen based on some kinds of fundamentals that they decided to screen on.
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Re: Can Quality Save International Stocks?

Post by jeffyscott »

beardsicles wrote: Tue Apr 02, 2024 1:00 pm
jeffyscott wrote: Tue Apr 02, 2024 12:35 pm
beardsicles wrote: Tue Apr 02, 2024 11:38 am
Cocoa Beach Bum wrote: Tue Apr 02, 2024 11:26 am
beardsicles wrote: Tue Apr 02, 2024 10:41 am This thread got me interested in IQLT and international quality screens. This thread's one of the few discussing it, but boy howdy in retrospect choosing IQLT over VTIAX would have paid off since OP made this post.
...
If only you'd chosen a better international quality ETF than IQLT:
https://www.portfoliovisualizer.com/fun ... meBQDh5AzD
Yeah, Fidelity’s quality international mutual fund too. Couple decades of data at this point. IHDG is compelling but the ER would make most folks here blanch. And the easy/lazy answer is to point at the PEs to explain the difference in performance.
It doesn't really seem to be about "quality". Schwab fundamental International (SFNNX) beat them both over that time frame. And International developed (EAFE via SWISX) nearly matched IQLT:

Image
https://www.portfoliovisualizer.com/fun ... bAfJWwjeEA
Yeah, FDIVX does even better. Quality might just be a screen for “large and developed”

Edit: IQLT and FNDF’s relative performance might support this, although their holdings are quite different.
:confused
FDIVX did worse than all the others mentioned, 6.66% for this particular time frame.

FIVLX, Fidelity International Value was close to SFNNX.

So maybe "quality" was just picking up more or less value, depending on how each of the two quality ETFs defined it?
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Re: Can Quality Save International Stocks?

Post by dkturner »

alex_686 wrote: Tue Apr 02, 2024 4:21 pm
dkturner wrote: Tue Apr 02, 2024 2:24 pm It doesn’t. International returns are lower because international stocks are less valuable for a variety of reasons. I was implying that if you believe in the EMH you should already have much lower expectations for the performance of international stocks, because they’re priced according to their actual value at any given point in time. And, if you have much lower expectations for the performance of international stocks, why own them in the first place?
Can you give me one of these various reasons?
Market sector allocation. In the U.S technology stocks make up 29.5% of all equities and have had a 15 year annualized return of 20.9%. 15 year annualized return for the overall U.S. market has been 15.5%. Total international markets technology stocks make up only 13.4% of all equities and the 15 year annualized return of total international markets has been 7.9%.
Last edited by dkturner on Wed Apr 03, 2024 6:21 am, edited 1 time in total.
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Re: Can Quality Save International Stocks?

Post by nisiprius »

Beensabu wrote: Tue Apr 02, 2024 1:25 pm
jeffyscott wrote: Tue Apr 02, 2024 12:35 pm It doesn't really seem to be about "quality".
"Quality" is just a word for "various fundamental measures of our choice". That's what it means when you see that word tacked onto a fund name. Look how wildly different the strategies are:

IQLT - "large- and mid-cap developed international stocks exhibiting positive fundamentals (high return on equity, stable year-over-year earnings growth and low financial leverage)"

IHDG - "dividend-paying companies with growth characteristics in the developed world ex the U.S. and Canada while hedging exposure to fluctuations between the U.S. dollar and foreign currencies"

SFNNX - "primarily invests in stocks that are included in the Russell RAFI Developed ex US Large Company Index" - "the Russell RAFI™ Index Series methodology selects and weights securities using the average of three fundamental measures of company size including adjusted sales, retained operating cash flow and dividends plus buybacks"
Wow. Just wow. The so-called quality "factor" is even less-well-defined than "value" or "emerging markets."

Imprecise definition helps play into the "no true Scotsman" fallacy.* "You looked at The Wrong Fund. That isn't really quality."

*"Scotsmen never put milk in their tea." "Uncle Angus puts milk in his tea." "No true Scotsman puts milk in his tea."
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Re: Can Quality Save International Stocks?

Post by beardsicles »

jeffyscott wrote: Tue Apr 02, 2024 10:29 pm
beardsicles wrote: Tue Apr 02, 2024 1:00 pm
jeffyscott wrote: Tue Apr 02, 2024 12:35 pm
beardsicles wrote: Tue Apr 02, 2024 11:38 am
Cocoa Beach Bum wrote: Tue Apr 02, 2024 11:26 am
If only you'd chosen a better international quality ETF than IQLT:
https://www.portfoliovisualizer.com/fun ... meBQDh5AzD
Yeah, Fidelity’s quality international mutual fund too. Couple decades of data at this point. IHDG is compelling but the ER would make most folks here blanch. And the easy/lazy answer is to point at the PEs to explain the difference in performance.
It doesn't really seem to be about "quality". Schwab fundamental International (SFNNX) beat them both over that time frame. And International developed (EAFE via SWISX) nearly matched IQLT:

Image
https://www.portfoliovisualizer.com/fun ... bAfJWwjeEA
Yeah, FDIVX does even better. Quality might just be a screen for “large and developed”

Edit: IQLT and FNDF’s relative performance might support this, although their holdings are quite different.
:confused
FDIVX did worse than all the others mentioned, 6.66% for this particular time frame.

FIVLX, Fidelity International Value was close to SFNNX.

So maybe "quality" was just picking up more or less value, depending on how each of the two quality ETFs defined it?
Ah yeah, sorry, didn’t mention the periods. FDIVX is at 8.01% since inception in the early 90s. The last three years (specifically and interestingly) haven’t been as strong.
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Re: Can Quality Save International Stocks?

Post by beardsicles »

Beensabu wrote: Tue Apr 02, 2024 10:12 pm
jeffyscott wrote: Tue Apr 02, 2024 10:04 pm My point was that SFNNX is not targeting quality. It actually scores low on quality according to Morningstar.
They all score low (or negative) on quality according to PV factor regression. SFNNX does have a value loading.

"Fundamental" is the same thing as "Quality" in a fund name. Some kind of a screen based on some kinds of fundamentals that they decided to screen on.
You got everyone all worked up about No True Scotsman while No True Scotmanning the argument, lol.
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Re: Can Quality Save International Stocks?

Post by alex_686 »

nisiprius wrote: Wed Apr 03, 2024 5:22 am
Beensabu wrote: Tue Apr 02, 2024 1:25 pm
jeffyscott wrote: Tue Apr 02, 2024 12:35 pm It doesn't really seem to be about "quality".
"Quality" is just a word for "various fundamental measures of our choice". That's what it means when you see that word tacked onto a fund name. Look how wildly different the strategies are:

IQLT - "large- and mid-cap developed international stocks exhibiting positive fundamentals (high return on equity, stable year-over-year earnings growth and low financial leverage)"

IHDG - "dividend-paying companies with growth characteristics in the developed world ex the U.S. and Canada while hedging exposure to fluctuations between the U.S. dollar and foreign currencies"

SFNNX - "primarily invests in stocks that are included in the Russell RAFI Developed ex US Large Company Index" - "the Russell RAFI™ Index Series methodology selects and weights securities using the average of three fundamental measures of company size including adjusted sales, retained operating cash flow and dividends plus buybacks"
Wow. Just wow. The so-called quality "factor" is even less-well-defined than "value" or "emerging markets."

Imprecise definition helps play into the "no true Scotsman" fallacy.* "You looked at The Wrong Fund. That isn't really quality."

*"Scotsmen never put milk in their tea." "Uncle Angus puts milk in his tea." "No true Scotsman puts milk in his tea."
No, it is better defined than you think.

Junk the middle index. You know marketing people are in the driver’s seat if you see the word “dividends”.

“Quality” means you have a stable business. You can focus on the front end (stable revenue) or the backend (stable earnings). It is hard to find cases where one is false and the other is true.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Valuethinker
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Re: Can Quality Save International Stocks?

Post by Valuethinker »

alex_686 wrote: Tue Apr 02, 2024 1:22 pm
dkturner wrote: Tue Apr 02, 2024 11:27 am
Robot Monster wrote: Thu Aug 20, 2020 9:55 am If Bogleheads are "underwhelmed and disappointed by international stock returns," then do you know what can save international stocks? How about lower expectations.
Do you mean applying the Efficient Market Hypothesis to international stocks? It would seem that international stocks have experienced lower returns than U.S. stocks because international markets are different than U.S. Markets, and that’s not likely to change overnight.
And how does this violate EMH?

Hint, international stocks uses lower leverage than US firms. Lower leverage means lower expected returns but also lower volatility. Also, the sectors tend to be in the lower growth, steady returns variety.
I think in recent years, though, it's not leverage which has driven the "super stocks" that have driven the S&P 500?

We have to set aside Berkshire Hathaway - that is highly leveraged, because it is an insurance business.

But of the big internet stocks - none of them is highly leveraged. Indeed Apple was (still?) net cash by several hundred billions (and it is a big part of BHs implied valuation). Nvidia is not, either. Neither is Tesla.

Generally I agree - US companies have been much more aggressive in buying back stock.

But I think the last few years performance has been so concentrated on these super companies, that the rest may not matter so much?
Valuethinker
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Re: Can Quality Save International Stocks?

Post by Valuethinker »

dkturner wrote: Wed Apr 03, 2024 4:58 am
alex_686 wrote: Tue Apr 02, 2024 4:21 pm
dkturner wrote: Tue Apr 02, 2024 2:24 pm It doesn’t. International returns are lower because international stocks are less valuable for a variety of reasons. I was implying that if you believe in the EMH you should already have much lower expectations for the performance of international stocks, because they’re priced according to their actual value at any given point in time. And, if you have much lower expectations for the performance of international stocks, why own them in the first place?
Can you give me one of these various reasons?
Market sector allocation. In the U.S technology stocks make up 29.5% of all equities and have had a 15 year annualized return of 20.9%. 15 year annualized return for the overall U.S. market has been 15.5%. Total international markets technology stocks make up only 13.4% of all equities and the 15 year annualized return of total international markets has been 7.9%.
What goes into the "technology" sector also needs scrutiny.

SAP and Sage, Germany and UK, are Enterprise Resource Planning or Accounting software companies. That's not, these days, what most people think of as "technology". Certainly not exciting like the big internet stocks.

The real tech superstock is ASML (machines to make chips -- ultraviolet etching) -- and most people have never heard of that. TSMC (Taiwan Semiconductor) would be the other. Samsung is a huge semiconductor company but I am not sure if it is classified as a tech stock.
dkturner
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Re: Can Quality Save International Stocks?

Post by dkturner »

Valuethinker wrote: Wed Apr 03, 2024 11:16 am
dkturner wrote: Wed Apr 03, 2024 4:58 am
alex_686 wrote: Tue Apr 02, 2024 4:21 pm
dkturner wrote: Tue Apr 02, 2024 2:24 pm It doesn’t. International returns are lower because international stocks are less valuable for a variety of reasons. I was implying that if you believe in the EMH you should already have much lower expectations for the performance of international stocks, because they’re priced according to their actual value at any given point in time. And, if you have much lower expectations for the performance of international stocks, why own them in the first place?
Can you give me one of these various reasons?
Market sector allocation. In the U.S technology stocks make up 29.5% of all equities and have had a 15 year annualized return of 20.9%. 15 year annualized return for the overall U.S. market has been 15.5%. Total international markets technology stocks make up only 13.4% of all equities and the 15 year annualized return of total international markets has been 7.9%.
What goes into the "technology" sector also needs scrutiny.

SAP and Sage, Germany and UK, are Enterprise Resource Planning or Accounting software companies. That's not, these days, what most people think of as "technology". Certainly not exciting like the big internet stocks.

The real tech superstock is ASML (machines to make chips -- ultraviolet etching) -- and most people have never heard of that. TSMC (Taiwan Semiconductor) would be the other. Samsung is a huge semiconductor company but I am not sure if it is classified as a tech stock.
So, if I understand you correctly, international technology exposure is a much smaller number than the 13.4% figure I gleaned from the Morningstar data?
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jeffyscott
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Re: Can Quality Save International Stocks?

Post by jeffyscott »

Beensabu wrote: Tue Apr 02, 2024 10:12 pm
jeffyscott wrote: Tue Apr 02, 2024 10:04 pm My point was that SFNNX is not targeting quality. It actually scores low on quality according to Morningstar.
They all score low (or negative) on quality according to PV factor regression. SFNNX does have a value loading.

"Fundamental" is the same thing as "Quality" in a fund name. Some kind of a screen based on some kinds of fundamentals that they decided to screen on.
Morningstar has them (IQLT & IDHG) as high quality and growth. SFNNX is low quality and value. So, nothing in common wrt those two factors by m*'s methodology.

Does PV correctly evaluate factors for international stocks? I think they only have international developed and EM as possible attributes specific to international stock?

Of course, I've also no idea how Morningstar's doing it.
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Beensabu
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Re: Can Quality Save International Stocks?

Post by Beensabu »

jeffyscott wrote: Wed Apr 03, 2024 5:01 pm Of course, I've also no idea how Morningstar's doing it.
Profitability and low leverage.

"The quality factor describes the profitability and financial leverage of a company, based on an equally weighted mix of trailing 12-month return on equity and debt/capital ratios. A low percentile score for the quality factor indicates a higher quality of the firm."

https://advisor.morningstar.com/enterpr ... rGuide.pdf
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
avalpert1
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Re: Can Quality Save International Stocks?

Post by avalpert1 »

dkturner wrote: Tue Apr 02, 2024 11:27 am
Robot Monster wrote: Thu Aug 20, 2020 9:55 am If Bogleheads are "underwhelmed and disappointed by international stock returns," then do you know what can save international stocks? How about lower expectations.
Do you mean applying the Efficient Market Hypothesis to international stocks? It would seem that international stocks have experienced lower returns than U.S. stocks because international markets are different than U.S. Markets, and that’s not likely to change overnight.
On what basis do you think it seems like that? And does that mean when international was outperforming US that was because the US market was less 'efficient' or somehow 'different'?
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