Emerging markets have failed to live up (says M* article)

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Northern Flicker
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Re: Emerging markets have failed to live up (says M* article)

Post by Northern Flicker »

Nathan Drake wrote: Thu Feb 17, 2022 1:10 am
hillclimber wrote: Thu Feb 17, 2022 12:51 am
Nathan Drake wrote: Wed Feb 16, 2022 11:53 pm There are fundamental reasons why
I agree. However, there are also fundamental reasons why not. investing theory = backtest + story
Nathan Drake wrote: Wed Feb 16, 2022 11:53 pm The same arguments you are making about EM could be stated of any market, including the US
Well, yeah, that's the point. I think that there's a good chance that, long term, most countries have similar performance. I'm not the one arguing that emerging markets have a premium.
There are no “fundamental” reasons why not, unless valuations were higher in EM which they sometimes can be. EM was seen as less risky prior to 2008, and was priced accordingly.
One possible other reason is that opacity will lead to EM risk being mis-priced.
Trance
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Re: Emerging markets have failed to live up (says M* article)

Post by Trance »

hillclimber wrote: Thu Feb 17, 2022 1:44 am
Nathan Drake wrote: Thu Feb 17, 2022 1:10 am There are no “fundamental” reasons why not, unless valuations were higher in EM which they sometimes can be. EM was seen as less risky prior to 2008, and was priced accordingly

Low valuations, higher expected growth = higher expected returns, with more risk
That's a cool story. I've heard it many times, but I guess it never gets old.
I might be more willing to believe it if most stocks didn't underperform t-bills.
It's funny I've heard from many that there is no point in investing in long term bonds/bond funds since I'm a long way from retirement... but then to hold EM even though it performs worse.
60% VT 40% BNDW (no bonds in Roth)
Valuethinker
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Re: Emerging markets have failed to live up (says M* article)

Post by Valuethinker »

Trance wrote: Mon Aug 08, 2022 1:22 am
hillclimber wrote: Thu Feb 17, 2022 1:44 am
Nathan Drake wrote: Thu Feb 17, 2022 1:10 am There are no “fundamental” reasons why not, unless valuations were higher in EM which they sometimes can be. EM was seen as less risky prior to 2008, and was priced accordingly

Low valuations, higher expected growth = higher expected returns, with more risk
That's a cool story. I've heard it many times, but I guess it never gets old.
I might be more willing to believe it if most stocks didn't underperform t-bills.
It's funny I've heard from many that there is no point in investing in long term bonds/bond funds since I'm a long way from retirement... but then to hold EM even though it performs worse.
You can't predict future performance with past performance.

Particularly if you know what the macro factor was that led to that performance. In the case of long bonds, it was a long term trend to lower inflation and lower interest rates, as Central Banks adopted an inflation targetting approach to their policies.

We are now in a situation where inflation has risen sharply, and may be at a higher level indefinitely (more 4% than 9%, we hope). That is not a good environment for a long dated nominal instrument paying less than 3%?

OTOH if inflation is sustained, that tends to be good for people who have borrowed money, and who have commodity export dependent economies. Step forward Emerging Markets (and Frontier Markets).
MotoTrojan
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Re: Rebalancing US/INTL/EM

Post by MotoTrojan »

comeinvest wrote: Thu Aug 04, 2022 8:23 pm
If somebody invests now in "total world" for the rest of his life, this is nothing else but "letting it go", i.e. there will never be any rebalancing between geographies or any other criteria. Yes the country percentages will change over time, but it's neither market timing, nor factor investing: The asset allocation methodology is consistent, the algo is defined ahead of time, and will require no action ever.

This is not totally true as a total world approach on market-cap weighting would adjust for new issues or companies removed from the index. If you just buy VTI and VXUS at the current weighting within VT, you will track closely for some time but eventually will drift if one region has more/less new-issues (IPOs).
MotoTrojan
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Re: Emerging markets have failed to live up (says M* article)

Post by MotoTrojan »

nisiprius wrote: Fri Aug 05, 2022 8:29 pm
MotoTrojan wrote: Thu Feb 17, 2022 7:16 pm
nisiprius wrote: Fri Feb 11, 2022 6:30 pm Not risk-adjusted, it hasn't. The return hasn't been commensurate with the extra risk. They aren't anything special, they're just yet another category of stocks with a risk-adjusted return in the same ballpark as other categories. And they wouldn't have helped in any of the three big downturns in that time period: 2000-2003, 2008-2009, or 2020.

Holding DFA's US SCV, Dev SCV, and EM Val in 40/40/20 ratio had a higher CAGR and Sharpe than any of the 3 alone, and close to the lowest drawdown (only beat by DISVX, which was the worst overall performer).

Sure seemed to add something special to me.

https://www.portfoliovisualizer.com/bac ... tion3_1=20
I'm not seeing it. The portfolio of three funds (blue) didn't have either the lowest standard deviation or the lowest drawdown. It had the highest Sharpe ratio (pace, Vineviz), but in a set of 0.46, 0.44, 0.41, and 0.40 I don't think that's a big standout.

What are you seeing?

Image
Was true at the time.

https://www.portfoliovisualizer.com/bac ... tion3_1=20
comeinvest
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Re: Rebalancing US/INTL/EM

Post by comeinvest »

MotoTrojan wrote: Tue Aug 09, 2022 2:44 pm
comeinvest wrote: Thu Aug 04, 2022 8:23 pm
If somebody invests now in "total world" for the rest of his life, this is nothing else but "letting it go", i.e. there will never be any rebalancing between geographies or any other criteria. Yes the country percentages will change over time, but it's neither market timing, nor factor investing: The asset allocation methodology is consistent, the algo is defined ahead of time, and will require no action ever.

This is not totally true as a total world approach on market-cap weighting would adjust for new issues or companies removed from the index. If you just buy VTI and VXUS at the current weighting within VT, you will track closely for some time but eventually will drift if one region has more/less new-issues (IPOs).
True, probably rather small and unpredictable effect. But you know what I meant, and the essence of my question still stands. Would we benefit from inter-market fluctuations by splitting up total market.
manuvns
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Re: Emerging markets have failed to live up (says M* article)

Post by manuvns »

of you exclude china/HK shares EM is doing fine . sooner or later china will also perform good , indian stock markets have perforrmed above 9-10% annualy for the last 10 years and will most likely continue to do well
Thanks!
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