Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

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LongTermEtfHolder
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Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by LongTermEtfHolder » Tue Jun 30, 2020 10:24 am

As I write this post, Vanguard's total-market ex-US fund VTIAX/VXUS is trading below its price of 9.5 years ago.

In the same timeframe, Vanguard's total US market VTSAX/VTI nearly tripled in price, even after the recent hit of COVID-19.

Ex-US returns have been simply abysmal for the past decade.

Vanguard officially recommends allocating 40% of your stock holdings to ex-US. That is, Vanguard recommends you hold VTIAX almost on par with VTSAX.

How does this recommendation make sense if ex-US investments simply fail to perform?

Perhaps there are long-standing factors that simply prevent ex-US from rewarding investors on par with US equities?

For example, perhaps investor protections in the US are better than foreign?

One cannot help but think that when the top holding of VTIAX is Alibaba [political comment removed by admin LadyGeek]

With 2 of these mega-caps among its top 3 holdings, VTIAX seems very risky, so where's the commensurate return for investors willing to shoulder this risk?

VTIAX appears to be a high-risk, low-return investment, so why does Vanguard currently recommend allocating 40% to it?

Perhaps Jack Bogle, famously reluctant to recommend ex-US investments, was more correct than present-day Vanguard's official recommendation?
Last edited by LongTermEtfHolder on Tue Jun 30, 2020 11:03 am, edited 2 times in total.

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Re: Will VXUS ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by HippoSir » Tue Jun 30, 2020 10:36 am

Nobody knows, but the saying "Past performance is not indicative of future results" goes both ways.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by gr7070 » Tue Jun 30, 2020 10:45 am

Of course it will. We actually know this. Given enough time and the existence of possibility it *will* happen, eventually.

Will it happen in our life time? For a long enough period at a great enough rate to matter? Those pertinent questions no one actually has an answer for.

This or similar questions comes up often. Read up about recency bias. It's alive and well on Boglehead's!

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by LongTermEtfHolder » Tue Jun 30, 2020 10:48 am

gr7070 wrote:
Tue Jun 30, 2020 10:45 am
Will it happen in our life time? For a long enough period at a great enough rate to matter? Those pertinent questions no one actually has an answer for.
I was hoping to discuss whether there are known factors (like the aforementioned weak investor protection) that can explain why ex-US will not revert to beat US equity in our lifetime.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by Forester » Tue Jun 30, 2020 10:48 am

EM is still ahead of USA in the 21st Century. IMHO this is a question of (1) US Dollar strength (2) how much longer investors will pay out the nose for expensive US megacap.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by quadog » Tue Jun 30, 2020 10:49 am

Ex-U.S. Like getting punched in the face every day for the past decade. No thank you. I’ve allocated <3% of my NW to ex-U.S. over this time period and have no regrets.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by HawkeyePierce » Tue Jun 30, 2020 10:59 am

We don't even have to look back that far to see a period of ex-US outperformance compared to US. Between 2000 and 2010, international equities outperformed US equities.

US megacaps have been the superstars of the past decade. Nobody knows if that will continue.

(I slice up my equity between US large cap, US small cap value, ex-US small cap and emerging markets)

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by lostdog » Tue Jun 30, 2020 11:02 am

How much of ex-US do you have allocated to your portfolio?

Are you looking for confirmation to drop it?

If so, recency bias must be slowly creeping in and your looking for confirmation to drop it, correct? The human brain can be your worst enemy. Do some research on recency bias.

You'll definitely get confirmation to drop it here. [OT comment removed by admin LadyGeek]
Last edited by lostdog on Tue Jun 30, 2020 11:06 am, edited 1 time in total.
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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by hnd » Tue Jun 30, 2020 11:04 am

theres a lot of recency bias towards US v International as 2010-2020 US has just obliterated the international market as a whole. with reinvested dividends the total rate of return for 10 years on your mentioned ETF has only been 3% total as opposed to VTI which is at 241%.

because i don't have a better example, VWIGX (international growth index. what i imagine someone would suggest if you were looking to diversify into the international market with 1 fund back in the 80s) and VFINX as a comparison they were pretty much neck and neck from 1981 to 2010 with VWIGX beating the us index fund by jan 1, 2000.

so the question is, is the last 10 years the new normal? destined to continue? Or is it an anomaly, likely to correct and break back into typical cyclical models. who can tell? i'm betting on the latter.

I get it though. my old IRA through work was in OAAIX which had 50% allocation in international stocks. They offered us an alternative at work in 2012 and I began funding that instead (3 fund approach heavily VTSAX weighted)...2012-2018 i watched the 2 accounts act very differently and eventually I had enough and finally in 2018 ended the oppenheimer(invesco) account and rolled it into my own traditional.
Last edited by hnd on Tue Jun 30, 2020 11:29 am, edited 1 time in total.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by LongTermEtfHolder » Tue Jun 30, 2020 11:08 am

lostdog wrote:
Tue Jun 30, 2020 11:02 am
How much of ex-US do you have allocated to your portfolio?
I followed Vanguard's recommendation and allocated exactly 40% to it a few years ago. However, it keeps dropping below 40% as VTSAX keeps rising while VTIAX goes down or sideways. I kept buying up more ex-US to rebalance per my original plan, but it's really starting to feel like throwing good money after bad into a bottomless pit.

Thus, my current dilemma is whether to keep rebalancing, or just leave ex-US alone and plow all new cash into VTSAX.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by RomeoMustDie » Tue Jun 30, 2020 11:09 am

LongTermEtfHolder wrote:
Tue Jun 30, 2020 10:24 am
As I write this post, Vanguard's total-market ex-US fund VTIAX/VXUS is trading below its price of 9.5 years ago.

In the same timeframe, Vanguard's total US market VTSAX/VTI nearly tripled in price, even after the recent hit of COVID-19.

Ex-US returns have been simply abysmal for the past decade.

Vanguard officially recommends allocating 40% of your stock holdings to ex-US. That is, Vanguard recommends you hold VTIAX almost on par with VTSAX.

How does this recommendation make sense if ex-US investments simply fail to perform?

Perhaps there are long-standing factors that simply prevent ex-US from rewarding investors on par with US equities?

For example, perhaps investor protections in the US are better than foreign?

One cannot help but think that when the top holding of VTIAX is Alibaba [political comment removed by admin LadyGeek]

With 2 of these mega-caps among its top 3 holdings, VTIAX seems very risky, so where's the commensurate return for investors willing to shoulder this risk?

VTIAX appears to be a high-risk, low-return investment, so why does Vanguard currently recommend allocating 40% to it?

Perhaps Jack Bogle, famously reluctant to recommend ex-US investments, was more correct than present-day Vanguard's official recommendation?
Because those choosing to invest in international are seeking diversification not chasing performance.

Same logic: "why every stock, why not just the best performers"

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by lostdog » Tue Jun 30, 2020 11:11 am

LongTermEtfHolder wrote:
Tue Jun 30, 2020 11:08 am
lostdog wrote:
Tue Jun 30, 2020 11:02 am
How much of ex-US do you have allocated to your portfolio?
I followed Vanguard's recommendation and allocated exactly 40% to it a few years ago. However, it keeps dropping below 40% as VTSAX keeps rising while VTIAX goes down or sideways. I kept buying up more ex-US to rebalance per my original plan, but it's really starting to feel like throwing good money after bad into a bottomless pit.

Thus, my current dilemma is whether to keep rebalancing, or just leave ex-US alone and plow all new cash into VTSAX.
Have you considered a Life Strategy or Target Date fund? How many years do you have before retirement?

The all in one funds might be better for you because you won't see the re balancing into ex-US. This might be better for your brain not to give into the dark side of investing. Are the all in one funds an option for you?

Like I said, you'll get some confirmation to drop it. Some may call it wise, but don't give into the dark side.
Last edited by lostdog on Tue Jun 30, 2020 11:12 am, edited 1 time in total.
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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by tibbitts » Tue Jun 30, 2020 11:12 am

LongTermEtfHolder wrote:
Tue Jun 30, 2020 10:48 am
gr7070 wrote:
Tue Jun 30, 2020 10:45 am
Will it happen in our life time? For a long enough period at a great enough rate to matter? Those pertinent questions no one actually has an answer for.
I was hoping to discuss whether there are known factors (like the aforementioned weak investor protection) that can explain why ex-US will not revert to beat US equity in our lifetime.
You were hoping to win at least eight figures in the lottery that you didn't enter, too. This will work out about as well for you. There are no such known factors.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by packer16 » Tue Jun 30, 2020 11:12 am

IMO the big difference is the US is overweight 10% vs. ex-US technology & 2% health care and underweight 5% industrials & 2% financial services.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by RDA » Tue Jun 30, 2020 11:13 am

I believe it will. The last decade was flat, but who knows what the next few hold.

There's definite room for growth, as overall P/E is lower ex-US. I feel that globalization will continue to increase with technological advancement, potentially creating more wealth overseas.

33% of my portfolio is international. I feel that it helps protect me against US-specific stagnation.
I live here, work here, own property here, and invest the majority of my money here. Have to diversify somehow.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by McGilicutty » Tue Jun 30, 2020 11:14 am

Has International ever outperformed U.S. to the massive extent that U.S. has outperformed International over the last 10 years?

I know that International has outperformed U.S. for periods of time, but my understanding is that the outperformance has been modest at best.

If that's the case, why bother with owning International?

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by 02nz » Tue Jun 30, 2020 11:22 am

LongTermEtfHolder wrote:
Tue Jun 30, 2020 10:24 am
As I write this post, Vanguard's total-market ex-US fund VTIAX/VXUS is trading below its price of 9.5 years ago.

In the same timeframe, Vanguard's total US market VTSAX/VTI nearly tripled in price, even after the recent hit of COVID-19.
Somebody pointed this out already, but worth emphasizing: you need to consider the dividends as well, not just share price. An investment in international 9.5 years ago is not in the red, when dividends are considered.

Now to your broader question:

Image

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by LongTermEtfHolder » Tue Jun 30, 2020 11:28 am

02nz wrote:
Tue Jun 30, 2020 11:22 am
Now to your broader question:
Thanks, that graph is very illustrative. I'd like to point out though that VTIAX hasn't merely "underperformed the US" - it performed poorly, period. In absolute terms, it was just a poorly yielding investment for the past 10 years. Is that normal? Would you recommend to keep buying it right now?

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by 02nz » Tue Jun 30, 2020 11:30 am

LongTermEtfHolder wrote:
Tue Jun 30, 2020 11:28 am
02nz wrote:
Tue Jun 30, 2020 11:22 am
Now to your broader question:
Thanks, that graph is very illustrative. I'd like to point out though that VTIAX hasn't merely "underperformed the US" - it performed poorly, period. In absolute terms, it was just a poorly yielding investment for the past 10 years. Is that normal? Would you recommend to keep buying it right now?
I'd advise this: https://www.bogleheads.org/wiki/Boglehe ... the_course

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by vineviz » Tue Jun 30, 2020 11:31 am

LongTermEtfHolder wrote:
Tue Jun 30, 2020 10:24 am

VTIAX appears to be a high-risk, low-return investment, so why does Vanguard currently recommend allocating 40% to it?
Why? Because VTIAX is NOT a "high-risk, low-return" investment.

US stocks have outperformed ex-US stocks about as often, and by as much, as they've underperformed.

It's easy to see which group of stocks performed best over the past ten years, but that information is useless. Vanguard is smart enough to know that the likelihood that investors can accurately predict which group of stocks will outperform over the NEXT ten years is basically zero, and the only smart decision in the face of that kind of uncertainty is to own them both.
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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by HawkeyePierce » Tue Jun 30, 2020 11:33 am

McGilicutty wrote:
Tue Jun 30, 2020 11:14 am
Has International ever outperformed U.S. to the massive extent that U.S. has outperformed International over the last 10 years?

I know that International has outperformed U.S. for periods of time, but my understanding is that the outperformance has been modest at best.

If that's the case, why bother with owning International?
For most regular investors, the bigger risk to one's portfolio is sequence of returns risk, not failing to go all-in on an asset class that hits a home run the way US megacaps have over the past decade.

There are time periods when US equities have been flat-to-negative while ex-US has grown. By concentrating in only US equities, an investor takes on the uncompensated risk that they have to begin drawing from their portfolio during one of those bad periods.

An investor who diversifies reduces that risk.

Personally, I'd rather have a solid chance of meeting my financial needs than a middling chance of knocking it out of the park.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by 02nz » Tue Jun 30, 2020 11:34 am

LongTermEtfHolder wrote:
Tue Jun 30, 2020 11:28 am
I'd like to point out though that VTIAX hasn't merely "underperformed the US" - it performed poorly, period. In absolute terms, it was just a poorly yielding investment for the past 10 years. Is that normal?
By that logic, around 2008-2009 you would've dumped all your U.S. stocks, too, right? How would that have worked out? BTW Vanguard Total International has returned about 4.7% annually (CAGR) over the past decade. Not spectacular and far behind US, but if you think that's "poor", you have some surprises coming to you in your investing lifetime.
Last edited by 02nz on Tue Jun 30, 2020 11:41 am, edited 2 times in total.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by asif408 » Tue Jun 30, 2020 11:34 am

McGilicutty wrote:
Tue Jun 30, 2020 11:14 am
Has International ever outperformed U.S. to the massive extent that U.S. has outperformed International over the last 10 years?

I know that International has outperformed U.S. for periods of time, but my understanding is that the outperformance has been modest at best.

If that's the case, why bother with owning International?
According to poster vineviz in this post:
viewtopic.php?f=1&t=317662&hilit=international&start=50

International outperformed for the 53 year period from 1961 to 2012. He also mentions that in the past 60 years the US has outperformed EAFE 50% of the time, and underperformed 50% of the time. Maybe the last decade is just an anomaly with US stocks outperforming?

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by willthrill81 » Tue Jun 30, 2020 11:38 am

Forester wrote:
Tue Jun 30, 2020 10:48 am
EM is still ahead of USA in the 21st Century. IMHO this is a question of (1) US Dollar strength (2) how much longer investors will pay out the nose for expensive US megacap.
Similarly, SCV is still ahead of TSM since 2000 by 2.3% annualized.

There's no doubt that the strength of the USD has been a big factor underlying the outperformance of U.S. But then that begs the question: what would weaken the USD enough to turn the tide? As far as I can tell, the U.S. is still the 'cleanest dirty shirt in the hamper' and by a significant margin, at least among OECD nations.
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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by willthrill81 » Tue Jun 30, 2020 11:41 am

asif408 wrote:
Tue Jun 30, 2020 11:34 am
McGilicutty wrote:
Tue Jun 30, 2020 11:14 am
Has International ever outperformed U.S. to the massive extent that U.S. has outperformed International over the last 10 years?

I know that International has outperformed U.S. for periods of time, but my understanding is that the outperformance has been modest at best.

If that's the case, why bother with owning International?
According to poster vineviz in this post:
viewtopic.php?f=1&t=317662&hilit=international&start=50

International outperformed for the 53 year period from 1961 to 2012. He also mentions that in the past 60 years the US has outperformed EAFE 50% of the time, and underperformed 50% of the time. Maybe the last decade is just an anomaly with US stocks outperforming?
Start and end dates matter a lot, to be sure. Nearly all of international's outperformance during that period was during the 1970s, IIRC, when the U.S. underwent stagflation. And during that time, gold far outperformed both.

Similarly, since 1986 (all available data in Portfolio Visualizer), the U.S. has crushed ex-U.S. (10.15% vs. 6.46%) and with less volatility and a smaller maximum drawdown to boot.
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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by sperry8 » Tue Jun 30, 2020 11:55 am

02nz wrote:
Tue Jun 30, 2020 11:22 am
LongTermEtfHolder wrote:
Tue Jun 30, 2020 10:24 am
As I write this post, Vanguard's total-market ex-US fund VTIAX/VXUS is trading below its price of 9.5 years ago.

In the same timeframe, Vanguard's total US market VTSAX/VTI nearly tripled in price, even after the recent hit of COVID-19.
Somebody pointed this out already, but worth emphasizing: you need to consider the dividends as well, not just share price. An investment in international 9.5 years ago is not in the red, when dividends are considered.

Now to your broader question:

Image
Perfect chart to show those who don't understand. Cherry picking the last dozen years will mislead you. ALL charts look like this. Nothing outperforms forever.
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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by nisiprius » Tue Jun 30, 2020 12:10 pm

I am speaking as an international stock skeptic who invests 20% of my stock allocation internationally just because I feel uncomfortable being too far out of the mainstream.
LongTermEtfHolder wrote:
Tue Jun 30, 2020 10:24 am
As I write this post, Vanguard's total-market ex-US fund VTIAX/VXUS is trading below its price of 9.5 years ago.
Well, shame on you for looking only at price. Why would you do a silly thing like that?

And why did you pick a strange number like 9.5 years? But, OK, 9.5 years.

If you had invested $10,000 into VTIAX exactly 9.5 years ago, i.e. 12/30/2010, and had not given away or burned or donated all the dividends, you would, today, have $13,262.23. That's lousy, that's only 3% per year, it's poor return for risk... but it is a lot more than you'd have gotten in a money market mutual fund (orange), and you'd have beaten inflation by an average of about 1.6% per year.

Make it an even 10 years, for no particular reason except to show how much endpoints matter, and your $10,000 would have grown to $16,580.45 which works out to 5.19%/year.

Source

Image
How does this recommendation make sense if ex-US investments simply fail to perform?
It doesn't, but just because international stocks they have underperformed for 9.5 years doesn't mean it always will. Ten years doesn't mean much. That is probably one of the reasons for the "past performance" disclaimer, since ten years is the time period companies are required to show in their materials.

The brief story for international stocks is much like that for factors and almost everything else: leapfrogging.

Image

US, blue, International orange. 1970-1980, about the same; 1980-1990, international outperforms; 1990-2000, US outperforms; 2000-2009 international outperforms (international advocates in the forum were very smug, saying "it wasn't a 'lost decade' for us"); 2010-present, US outperforms. If you've chosen to invest in international stocks, you have to be ready to stay the course for longer than ten years.

Again, please remember I am an international stock skeptic, but I don't think the US is better, I just think it never has mattered much and I don't think it ever will matter much. The main thing is to stick to whatever decision you make. I'm glad that I'm underweighted in international because it has made it easier for me to stay the course during a period of international underperformance. I have no idea if international will outperform going forward are not.
Last edited by nisiprius on Tue Jun 30, 2020 12:14 pm, edited 3 times in total.
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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by climber2020 » Tue Jun 30, 2020 12:11 pm

LongTermEtfHolder wrote:
Tue Jun 30, 2020 11:08 am
Thus, my current dilemma is whether to keep rebalancing, or just leave ex-US alone and plow all new cash into VTSAX.
One other option is to decide on a domestic/international split, and make new contributions in those percentages regardless of which one is ahead. You won't feel like you're constantly dumping all your new money into the loser fund but still have some diversification in the event International does really well the next 10 years.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by whereskyle » Tue Jun 30, 2020 12:14 pm

Forester wrote:
Tue Jun 30, 2020 10:48 am
EM is still ahead of USA in the 21st Century. IMHO this is a question of (1) US Dollar strength (2) how much longer investors will pay out the nose for expensive US megacap.
This is a great point. Remove FAANGM and a few other sexy stocks and there is no remarkable US outperformance. Investors are treating FAANGM like they will grow profits perpetually. Seeing as how no company has ever done that, I expect investors will eventually stop bidding up the price of these stocks, and when they do, they will look for somewhere else to put their money. Where will they put it? Because I don't know, I own some ex-US stocks.

Another way of looking at ex-US stocks, and the risk/reward premise they offer, is that they don't have as far to fall. Eventually, people are not going to pay $100 for $1 of Netflix's earnings. If (and when) that ratio falls to a still completely unreasonable ratio of $50 to $1, Netflix stockholders will lose half of their investment. When it returns to a still historically high ratio of $25 to $1, they will lose even more. Ex-us stocks are trading at more reasonable price-to-earnings ratios and the US dollar virtually cannot get any stronger. That means things are likely going to trend in the other direction, and even if things are still rough for ex-us stocks, they don't have nearly as far to fall.
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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by TheoLeo » Tue Jun 30, 2020 12:15 pm

I am fully invested in a total world index etf for simplicity and minimizing regrets. But I do have trouble seeing innovative companies emerging from outside of the US. I can only speak for my home country of Germany, however. All the major companies here are dinosaurs or copycats of american businesses. And that is despite of having most of the things that are necessary for business and innovation nailed down.

I think the US stock market is in fact exceptional and will continue to be exceptional. I am just to scared to bet everything on it :D

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by nisiprius » Tue Jun 30, 2020 12:17 pm

P.S. The phrase "high-risk, low-reward" itself is interesting. What do you think "high risk" means? It means you can't be sure if you'll get a high reward, a low reward, no reward... or a loss.
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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by mbasherp » Tue Jun 30, 2020 12:35 pm

I happen to side with those who think that dollar strength and the run of mega-caps explain a great deal of the difference in the past decade, and I don't think it's wise to assume those continue indefinitely. Why do I think that? All of recorded history agrees with it.

But that's not why I hold 33% international.

When I compare:
If I hold US only, perhaps I will receive superior returns.
vs
If I hold US only, I could be exposed to many US specific risks (geopolitical, monetary, etc) without protection.


It becomes a no-brainer for me to hold some international stocks. I'm in my 30's - they've been on sale for most of my investing career. That's fine.

Deontic
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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by Deontic » Tue Jun 30, 2020 12:37 pm

Heresy I know, but, is it easier to push International where there are abundant investment opportunities to avoid closing U.S. funds that are over subscribed?

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by 02nz » Tue Jun 30, 2020 12:41 pm

Deontic wrote:
Tue Jun 30, 2020 12:37 pm
Heresy I know, but, is it easier to push International where there are abundant investment opportunities to avoid closing U.S. funds that are over subscribed?
This could theoretically be the case with active funds (but I don't think is the reason Vanguard is "pushing" international if you want to call it that), but a total nonissue for index funds.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by atdharris » Tue Jun 30, 2020 1:19 pm

I wish I knew the answer to this question - I am tilting more toward emerging markets than I am developed ones. Europe seems to have structural problems with their economy and have had anemic growth now since the GFC. That, and they have largely been left out of the technology revolution. I don't see that changing anytime soon.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by MittensMoney » Tue Jun 30, 2020 1:22 pm

Will the US economy always be the stalwart performer we've come to know and love?? *gestures broadly at everything right now*

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by LongTermEtfHolder » Tue Jun 30, 2020 1:45 pm

mbasherp wrote:
Tue Jun 30, 2020 12:35 pm
If I hold US only, I could be exposed to many US specific risks (geopolitical, monetary, etc) without protection.
If the US suffers a significant downturn, most of these ex-US companies VTIAX holds will also lose much value.

In fact, VTSAX and VTIAX are largely moving in tandem from what I've seen, but over the past years VTIAX has been dropping more sharply and recovering more sluggishly compared to VTSAX - hence the performance lag.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by asif408 » Tue Jun 30, 2020 1:48 pm

LongTermEtfHolder wrote:
Tue Jun 30, 2020 1:45 pm
mbasherp wrote:
Tue Jun 30, 2020 12:35 pm
If I hold US only, I could be exposed to many US specific risks (geopolitical, monetary, etc) without protection.
If the US suffers a significant downturn, most of these ex-US companies VTIAX holds will also lose much value.

In fact, VTSAX and VTIAX are largely moving in tandem from what I've seen, but over the past years VTIAX has been dropping more sharply and recovering more sluggishly compared to VTSAX - hence the performance lag.
So has that always happened that way in the past, and do you think it will happen that way in the future?

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by Schlabba » Tue Jun 30, 2020 2:29 pm

Does anyone have any data or graph on US-excluding-FAANG vs International? Or maybe US vs International with equal sector weights?

It just seems that either FAANG or tech in general outperformed, but did the other industries also outperform this last 10 years?

So if you want to base your decision on the last 10 years (which you shouldn't) maybe put your money in a the nasdaq100 or maybe just put it all in Amazon and hope it repeats its amazing performance the coming 10 years.


I'd be more inclined to go international for their attractive valuations instead: https://pressroom.vanguard.com/nonindex ... k_2020.pdf

I won't, I hold world market cap (and a dividend index but that's a different story :happy )
Secretly a dividend investor. Feel free to ask why.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by asif408 » Tue Jun 30, 2020 3:12 pm

Schlabba wrote:
Tue Jun 30, 2020 2:29 pm
Does anyone have any data or graph on US-excluding-FAANG vs International? Or maybe US vs International with equal sector weights?

It just seems that either FAANG or tech in general outperformed, but did the other industries also outperform this last 10 years?
Can't speak for ex-FAANG or equal weight, but tech, healthcare, and consumer discretionary have had 18.7%, 16.1%, & 15.4% returns, respectively, over the last 10 years compared to 12.8% for the total stock market:

https://investor.vanguard.com/etf/list? ... nd-returns

Not surprisingly, healthcare and tech make up about 40% of the US total stock market, compared to about 20% for the total international fund. If you own a total US stock market fund, you're making a pretty big bet on those 2 sectors continuing their performance. Notably, those were laggards the prior decade.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by steve321 » Tue Jun 30, 2020 3:50 pm

nisiprius wrote:
Tue Jun 30, 2020 12:17 pm
P.S. The phrase "high-risk, low-reward" itself is interesting. What do you think "high risk" means? It means you can't be sure if you'll get a high reward, a low reward, no reward... or a loss.
What you write is pretty absurd. Assuming the probability distribution of outcomes is a Gaussian (which it isn't because they're fat tailed, but which Mr Fama models as a Gaussian anyways), high risk means that the standard deviation (sigma) is high; low reward means that the mean (Greek letter mu) is low. it's a perfectly rational sentence that makes logical sense.
Can't do Greek letters otherwise would have made it clearer.
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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by tibbitts » Tue Jun 30, 2020 4:10 pm

McGilicutty wrote:
Tue Jun 30, 2020 11:14 am
Has International ever outperformed U.S. to the massive extent that U.S. has outperformed International over the last 10 years?

I know that International has outperformed U.S. for periods of time, but my understanding is that the outperformance has been modest at best.

If that's the case, why bother with owning International?
So to clarify, you're arguing that the recent U.S. outperformance is a statistical anomaly that is virtually certain to never repeat, and that U.S. stocks will inevitably revert to the mean?

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by Northern Flicker » Tue Jun 30, 2020 4:36 pm

There is no such thing as a high risk/high reward investment. There are high risk/high expected return investments. The high risk means a comparatively higher risk of not being rewarded than for low risk investments.

Whether an investment turns out to be high or low reward in some period is its outcome. If you invest in high risk investments like stocks, you have to be prepared for the possibility of not being rewarded over any particular investment horizon, whether it is US or non-US stock.
Last edited by Northern Flicker on Tue Jun 30, 2020 5:01 pm, edited 1 time in total.
Risk is not a guarantor of return.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by SantaClaraSurfer » Tue Jun 30, 2020 4:40 pm

If your work involves selling to, collaborating with or competing with companies in EMEA and AIPAC there's little chance you view businesses based outside the US through this lens.

There are tremendously smart, competitive business ventures outside the US, and some of the problems these companies tackle on a daily basis are problems that US businesses have had a relative competitive advantage (because of the size and homogeneity of the U.S. market) of being able to mostly ignore...for now.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by vineviz » Tue Jun 30, 2020 4:54 pm

McGilicutty wrote:
Tue Jun 30, 2020 11:14 am
Has International ever outperformed U.S. to the massive extent that U.S. has outperformed International over the last 10 years?
Yes.

From 2010 to 2019, ex-US stocks underperformed US stocks by an average of 7.15% per year.

From 1965 to 1974, ex-US stocks outperformed US stocks by an average of 7.24% per year.

It's really striking just how extraordinary the past decade has been for US stocks. US stocks outperformed ex-US stocks in 8/10 (80%) of the most recent calendar years. For the five decades before that, US stocks outperformed ex-US stocks only 44% of the time.

Flipping a coin ten times and getting "heads" on eight of those flips might be noteworthy, but anyone using that streak as a justification for betting their life savings on the streak persisting would be making a very fundamental error in probabilistic thinking.
"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: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by McGilicutty » Tue Jun 30, 2020 5:57 pm

vineviz wrote:
Tue Jun 30, 2020 4:54 pm
McGilicutty wrote:
Tue Jun 30, 2020 11:14 am
Has International ever outperformed U.S. to the massive extent that U.S. has outperformed International over the last 10 years?
Yes.

From 2010 to 2019, ex-US stocks underperformed US stocks by an average of 7.15% per year.

From 1965 to 1974, ex-US stocks outperformed US stocks by an average of 7.24% per year.

It's really striking just how extraordinary the past decade has been for US stocks. US stocks outperformed ex-US stocks in 8/10 (80%) of the most recent calendar years. For the five decades before that, US stocks outperformed ex-US stocks only 44% of the time.

Flipping a coin ten times and getting "heads" on eight of those flips might be noteworthy, but anyone using that streak as a justification for betting their life savings on the streak persisting would be making a very fundamental error in probabilistic thinking.
Interesting. Looks like I just happened to be born at the right time to be 95%+ U.S. stocks and index funds (rest is cash). It's better to be lucky than good I guess.

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Post by hdas » Tue Jun 30, 2020 6:10 pm

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Last edited by hdas on Thu Jul 09, 2020 5:00 pm, edited 1 time in total.
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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by LongTermEtfHolder » Tue Jun 30, 2020 6:20 pm

vineviz wrote:
Tue Jun 30, 2020 11:31 am
Vanguard is smart enough to know that the likelihood that investors can accurately predict which group of stocks will outperform over the NEXT ten years is basically zero, and the only smart decision in the face of that kind of uncertainty is to own them both.
The reason the US has done so well over the pat decade is the rise of tech megacap. These companies - like Amazon, Google, and Facebook - only seem to gain more power and wealth with time. Which group of stocks could possibly outperform them?

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by vineviz » Tue Jun 30, 2020 6:33 pm

LongTermEtfHolder wrote:
Tue Jun 30, 2020 6:20 pm
These companies - like Amazon, Google, and Facebook - only seem to gain more power and wealth with time. Which group of stocks could possibly outperform them?
I can’t tell if you’re being naive, sarcastic, or if you’re just trolling us.

Was there supposed to be an eye-wink emoticon?
"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: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by willthrill81 » Tue Jun 30, 2020 6:51 pm

vineviz wrote:
Tue Jun 30, 2020 6:33 pm
LongTermEtfHolder wrote:
Tue Jun 30, 2020 6:20 pm
These companies - like Amazon, Google, and Facebook - only seem to gain more power and wealth with time. Which group of stocks could possibly outperform them?
I can’t tell if you’re being naive, sarcastic, or if you’re just trolling us.

Was there supposed to be an eye-wink emoticon?
While I lean toward the 'U.S. only is probably good enough' argument, I have to agree with you here.

Almost two years ago, I started a thread about a Research Affiliates piece that detailed how all of the top 10 largest companies by market cap-weight in the year 2000 subsequently very badly underperformed the S&P 500 in the next 18 years.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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