I think EM will outperform because of their China exposure.Anon9001 wrote: ↑Sat Feb 08, 2020 12:30 pmYou can use PortfolioVisualizer and compare USMV and VTSMX compared to VTSMX and IEMG. Data is only 8 years unfortunately. I do not think EM stocks can outperform significantly due to their high China exposure. Whenever China becomes a free market that respects rights of minority shareholders that is when EM will outperform.unclescrooge wrote: ↑Sat Feb 08, 2020 12:18 pmOver what time period?Anon9001 wrote: ↑Sat Feb 08, 2020 11:53 amOkay let's assume EM is multinationals like you said from your point of view what is the point in owning them? You are owning more volatile stocks with high correlation to your local equities. Sure they can deliver higher return in the not too distant future maybe but there is a high chance they won't. Risk and return do not have a strong relationship. Low Volatility Equities have outperformed EM significantly despite it being less volatile.alex_686 wrote: ↑Fri Feb 07, 2020 5:47 pmI am missing a couple of steps here.
Historically equities have had low currency risk. 80%+ of yearly FX movement is tied to inflation. Equities are a excellent hedge against inflation. Over the past 100+ years, currency risk has run around 1% volatility, across all currency pairs. Because of Purchasing Power Parity, this risk means reverts to 0 for long holdings periods.
Next, what are you trying to show with your graph? Why would holding a diverse set of EM currency risk be uniquely risky? Also, your graph misleads. The majority of EM revenue to other EM companies in the supply chain. IIRC, every iPhone generates 7x of its value in cross country revenue.
For example, from a USD viewpoint, what is the FX risk on earnings of investing in a Vietnamese chip test & packaging company that buys chips from Korea and sells them on to China to produce a iPhone? Lots of revenue as the supply chain crosses boarders, but not much earnings.
Low volatility funds haven't been around for all that long. Are you saying the history is long enough to make an informed decision? If not, you seem to be cherry picking your data points.
50% of my stock exposure is international, 50% of that is EM. And 50% is direct exposure in China via non state owned company ETF. This gives it an indirect tilt towards tech companies.
It was up 38% last year.
The bias on the board against EM gives me faith it will do well.