Why Now’s The Time For Int’l ETFs
This article is part of a regular series of thought leadership pieces from some of the more influential ETF strategists in the money management industry. Today's article is by Dustin Blodgett, a portfolio specialist and member of the Investment Committee at Accuvest Global Advisors in Walnut Creek, California.
More often than not, advisors and clients move too slowly in increasing allocations away from the U.S., thus missing out on much of the international rebounds that have occurred throughout history.
This is largely due to home-country bias and not feeling as comfortable with having exposures to countries and companies with which investors aren’t as familiar.
However, half of the investment opportunity set resides outside of the U.S. (looking at market cap), and the need for advisors to help navigate their clients beyond the border for investing is increasingly important.
Below are three reasons now is the time to increase you International allocations.
1. YTD Performance
Through July 31, 2017, YTD returns show that international markets, both developed and emerging, have outpaced the U.S. market. Emerging markets have more than doubled the return of the S&P 500.
History suggests this international outperformance period will last approximately 47 months on average, adding over 80% more return than that of the U.S.
2. Relative Strength & Momentum Shift To Int’l Markets
According to point-and-figure (P&F) charts and relative strength, momentum for international markets has finally broken out. This is shown by the sharp run-up in stacked green X’s at the right of the chart below.
P&F charts analyze supply and demand of an investment, while evaluating price trends over the long term to determine entry and exit points. P&F charting shows that now is the time to buy into international.
EFA vs. SPY
07/31/2014-07/31/2017
3. History As A Guide
We’ve written about the cyclical nature of U.S. market performance versus international market performance before.
For the last 107+ months, U.S. markets have outperformed relative to international markets, leading to roughly 91% of outperformance. This is the longest U.S. bull market cycle since 1970.
Consider how that compares with the average length of a U.S. outperformance cycle, which is only 68 months.
These three reasons help show that this historically cyclical nature has “turned,” and now it’s time for international markets to have their run.
At the time of writing, Accuvest Global Advisors held SPY among its universe of ETFs included in its suite of ETF portfolios. The author can be reached at dustin.blodgett@accuvest.com.
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