In what condition, will international significantly overperform US?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: In what condition, will international significantly overperform US?

Post by Marseille07 »

It's a tough question to answer, because I agree that US valuations are high at the moment. We had an opportunity to correct that last March but people decided to buy the dip.
User avatar
Ocean77
Posts: 800
Joined: Wed Oct 23, 2019 3:20 pm

Re: In what condition, will international significantly overperform US?

Post by Ocean77 »

frand wrote: Wed Mar 31, 2021 9:53 am There is a difference though. I can see clearly when Value over-perform Growth, when Small Cap over-perform Large Cap, but I can't see when International over-perform US. That's why I ask this question.

Ocean77 wrote: Tue Mar 30, 2021 6:38 pm
This was an analogy, but you can apply it to almost any asset class comparison - US/international, Value/Growth, etc. It is impossible to predict when any such shift may start. The best indication may be to just count the number of threads on sites such as ours asking if it makes sense to get out of the [Fill in recently underperforming asset class here].
Image
30% US Stocks | 30% Int Stocks | 40% Bonds
hi_there
Posts: 1182
Joined: Sat Aug 29, 2020 7:00 pm

Re: In what condition, will international significantly overperform US?

Post by hi_there »

I would argue that US and International stocks are not even the same asset class, given differences in legal, cultural, and regulatory structures in different countries. Companies in different countries will face different constraints with respect to risk taking ability, access to capital, and ability to return earnings to shareholders. There's no reason to expect that stock returns in different countries will converge over time if we accept that their return structures are intrinsically different, just like stocks and bonds.

To the original question of when international stocks will outperform US - I think we would need to see political change, deregulation, and a capitalist oriented cultural movement in other countries for this to happen. US companies tend to be more growth and risk oriented and will outperform in a future with positive economic performance. However, post-2008, US has also been shown to respond better and be less prone to crises. There is a lot of room for EU or China to reform and provide a better environment for stock market returns if they make it a priority.
Nathan Drake
Posts: 6235
Joined: Mon Apr 11, 2011 12:28 am

Re: In what condition, will international significantly overperform US?

Post by Nathan Drake »

hi_there wrote: Wed Mar 31, 2021 11:12 am I would argue that US and International stocks are not even the same asset class, given differences in legal, cultural, and regulatory structures in different countries. Companies in different countries will face different constraints with respect to risk taking ability, access to capital, and ability to return earnings to shareholders. There's no reason to expect that stock returns in different countries will converge over time if we accept that their return structures are intrinsically different, just like stocks and bonds.

To the original question of when international stocks will outperform US - I think we would need to see political change, deregulation, and a capitalist oriented cultural movement in other countries for this to happen. US companies tend to be more growth and risk oriented and will outperform in a future with positive economic performance. However, post-2008, US has also been shown to respond better and be less prone to crises. There is a lot of room for EU or China to reform and provide a better environment for stock market returns if they make it a priority.
Are companies like Shell and Nestle, that have vast global
operations yet happen to be headquartered in Europe, somehow bound to the regional constraints of where they happen to be headquartered?

I’d argue, no. These large multinational megacorps that dominate international funds have wide exposure to global operations and already act in accordance with that.
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
User avatar
Anon9001
Posts: 1884
Joined: Fri Dec 20, 2019 8:28 am
Location: بھارت

Re: In what condition, will international significantly overperform US?

Post by Anon9001 »

Nathan Drake wrote: Wed Mar 31, 2021 11:32 am Are companies like Shell and Nestle, that have vast global
operations yet happen to be headquartered in Europe, somehow bound to the regional constraints of where they happen to be headquartered?

I’d argue, no. These large multinational megacorps that dominate international funds have wide exposure to global operations and already act in accordance with that.
This is very good point you have made. Looking only at domicile is very misleading as MSCI ACWI which has 10% in Emerging Markets actually has 42% revenue exposure to Emerging Economies. I don't know why this forum seems to assume Europe Stocks=Europe Economy and Japan Stocks=Japanese Economy when shown below that is not the case.
Image
Image
Land/Real Estate:89.4% (Land/RE is Inheritance which will be recieved in 10-20 years) Equities:7.6% Fixed Income:1.7% Gold:0.8% Cryptocurrency:0.5%
Coltrane75
Posts: 349
Joined: Wed Feb 06, 2019 1:32 pm

Re: In what condition, will international significantly overperform US?

Post by Coltrane75 »

Nathan Drake wrote: Wed Mar 31, 2021 11:32 am Are companies like Shell and Nestle, that have vast global
operations yet happen to be headquartered in Europe, somehow bound to the regional constraints of where they happen to be headquartered?

I’d argue, no. These large multinational megacorps that dominate international funds have wide exposure to global operations and already act in accordance with that.
Great point. Similarly, US companies are not bound to the US and are exposed to International markets.

IMO, this bolsters the case to make equity investments global.

But this is a very polarizing topic...
User avatar
Schlabba
Posts: 831
Joined: Sat May 11, 2019 9:14 am

Re: In what condition, will international significantly overperform US?

Post by Schlabba »

hi_there wrote: Wed Mar 31, 2021 11:12 am I would argue that US and International stocks are not even the same asset class, given differences in legal, cultural, and regulatory structures in different countries. Companies in different countries will face different constraints with respect to risk taking ability, access to capital, and ability to return earnings to shareholders. There's no reason to expect that stock returns in different countries will converge over time if we accept that their return structures are intrinsically different, just like stocks and bonds.

To the original question of when international stocks will outperform US - I think we would need to see political change, deregulation, and a capitalist oriented cultural movement in other countries for this to happen. US companies tend to be more growth and risk oriented and will outperform in a future with positive economic performance. However, post-2008, US has also been shown to respond better and be less prone to crises. There is a lot of room for EU or China to reform and provide a better environment for stock market returns if they make it a priority.
So to sum it up, you call American exceptionalism.

A dollar invested in 1970 in either the MSCI Europe or S&P500 end up at the same profit in 2008: https://thereformedbroker.com/2017/05/2 ... an-stocks/

Everyone else disagrees with those conclusions as well, don't take my word for it, look at the predictions by Vanguard, BlackRock, JPMorgen, MorningStar and Research Affiliates. https://www.morningstar.com/articles/10 ... 21-edition
Scooter57
Posts: 2019
Joined: Thu Jan 24, 2013 8:20 am

Re: In what condition, will international significantly overperform US?

Post by Scooter57 »

Nathan Drake wrote: Wed Mar 31, 2021 11:32 am
hi_there wrote: Wed Mar 31, 2021 11:12 am I would argue that US and International stocks are not even the same asset class, given differences in legal, cultural, and regulatory structures in different countries. Companies in different countries will face different constraints with respect to risk taking ability, access to capital, and ability to return earnings to shareholders. There's no reason to expect that stock returns in different countries will converge over time if we accept that their return structures are intrinsically different, just like stocks and bonds.

To the original question of when international stocks will outperform US - I think we would need to see political change, deregulation, and a capitalist oriented cultural movement in other countries for this to happen. US companies tend to be more growth and risk oriented and will outperform in a future with positive economic performance. However, post-2008, US has also been shown to respond better and be less prone to crises. There is a lot of room for EU or China to reform and provide a better environment for stock market returns if they make it a priority.
Are companies like Shell and Nestle, that have vast global
operations yet happen to be headquartered in Europe, somehow bound to the regional constraints of where they happen to be headquartered?

I’d argue, no. These large multinational megacorps that dominate international funds have wide exposure to global operations and already act in accordance with that.
You cherry picked from among the few very large cap stocks in ex-US indexes that have that kind of international footprint and are domiciled (and regulated) by European governments who share a similar outlook towards business to that of the US.

But your picks also are companies that fall into the category of extractive industry and cyclical (Shell) and Consumer Defensive (slow growing, mature, unlikely to provide much growth--Nestle.) You could have cited Unilever, too. But If you go down the list of large cap international stocks there are precious few like them.

These aren't the stocks that power the kinds of huge, speculative gains that have been driving markets for the last 30 years, unless you think that investors will suddenly all decide to invest for dividends. Because that is the kind of investor a company like Shell or Nestle attracts. It is also worth noting that right now Nestle is as overvalued, or possibly MORE overvalued than the US food companies I currently invest in. Every investor who bought into Shell since 2008 has been underwater on their investment at all times since then. These do not look like the kind of companies that would propel an index fund to where it would outperform the US large cap indexes.
User avatar
Anon9001
Posts: 1884
Joined: Fri Dec 20, 2019 8:28 am
Location: بھارت

Re: In what condition, will international significantly overperform US?

Post by Anon9001 »

If you are to look at Ex-US broadly the revenue exposure seems to be 15.47% US, 33.58 Exposure to EM, 22.74% Exposure to Europe,22.56% Exposure to Asia Pacific and 4.51% Exposure to Canada. Source.
Image
Land/Real Estate:89.4% (Land/RE is Inheritance which will be recieved in 10-20 years) Equities:7.6% Fixed Income:1.7% Gold:0.8% Cryptocurrency:0.5%
Nathan Drake
Posts: 6235
Joined: Mon Apr 11, 2011 12:28 am

Re: In what condition, will international significantly overperform US?

Post by Nathan Drake »

Scooter57 wrote: Wed Mar 31, 2021 12:24 pm
Nathan Drake wrote: Wed Mar 31, 2021 11:32 am
hi_there wrote: Wed Mar 31, 2021 11:12 am I would argue that US and International stocks are not even the same asset class, given differences in legal, cultural, and regulatory structures in different countries. Companies in different countries will face different constraints with respect to risk taking ability, access to capital, and ability to return earnings to shareholders. There's no reason to expect that stock returns in different countries will converge over time if we accept that their return structures are intrinsically different, just like stocks and bonds.

To the original question of when international stocks will outperform US - I think we would need to see political change, deregulation, and a capitalist oriented cultural movement in other countries for this to happen. US companies tend to be more growth and risk oriented and will outperform in a future with positive economic performance. However, post-2008, US has also been shown to respond better and be less prone to crises. There is a lot of room for EU or China to reform and provide a better environment for stock market returns if they make it a priority.
Are companies like Shell and Nestle, that have vast global
operations yet happen to be headquartered in Europe, somehow bound to the regional constraints of where they happen to be headquartered?

I’d argue, no. These large multinational megacorps that dominate international funds have wide exposure to global operations and already act in accordance with that.
You cherry picked from among the few very large cap stocks in ex-US indexes that have that kind of international footprint and are domiciled (and regulated) by European governments who share a similar outlook towards business to that of the US.

But your picks also are companies that fall into the category of extractive industry and cyclical (Shell) and Consumer Defensive (slow growing, mature, unlikely to provide much growth--Nestle.) You could have cited Unilever, too. But If you go down the list of large cap international stocks there are precious few like them.

These aren't the stocks that power the kinds of huge, speculative gains that have been driving markets for the last 30 years, unless you think that investors will suddenly all decide to invest for dividends. Because that is the kind of investor a company like Shell or Nestle attracts. It is also worth noting that right now Nestle is as overvalued, or possibly MORE overvalued than the US food companies I currently invest in. Every investor who bought into Shell since 2008 has been underwater on their investment at all times since then. These do not look like the kind of companies that would propel an index fund to where it would outperform the US large cap indexes.
I’m not cherry picking, they were just a few examples. I wasn’t highlighting them for their brilliant ability to outperform, only that I don’t see any reason why they are at a competitive disadvantage to similar companies headquartered in the US.

Go through the list of the top holdings of VTIAX and you see that it is not only dominated by huge multinationals in certain sectors like cyclicals, but it also has an abundance of high growth tech, predominantly in Asia.

However, I don’t see any reason why I should avoid investing in companies that are mature. Do these companies somehow not innovate? Do they not try and become more efficient? Investors are notorious for overpaying for growth, and some of the best returns have been companies that are completely shunned for various reasons (see: tobacco).

This is all to say that I see no compelling evidence that over the long term stocks headquartered in the US will meaningfully outperform given the current delta in valuations.
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
User avatar
Anon9001
Posts: 1884
Joined: Fri Dec 20, 2019 8:28 am
Location: بھارت

Re: In what condition, will international significantly overperform US?

Post by Anon9001 »

On further analysis of this question it does not seem to be answerable objectively. Most of this forum is from USA and considering home bias is universal asking this question to them is like asking do you expect Ex-Indian stocks to out-perform Indian stocks to a forum full of Indian investors or asking do you expect Ex-German stocks to out-perform German stocks to a forum full of German investors.
Land/Real Estate:89.4% (Land/RE is Inheritance which will be recieved in 10-20 years) Equities:7.6% Fixed Income:1.7% Gold:0.8% Cryptocurrency:0.5%
hi_there
Posts: 1182
Joined: Sat Aug 29, 2020 7:00 pm

Re: In what condition, will international significantly overperform US?

Post by hi_there »

Nathan Drake wrote: Wed Mar 31, 2021 12:50 pm
Scooter57 wrote: Wed Mar 31, 2021 12:24 pm
Nathan Drake wrote: Wed Mar 31, 2021 11:32 am
hi_there wrote: Wed Mar 31, 2021 11:12 am I would argue that US and International stocks are not even the same asset class, given differences in legal, cultural, and regulatory structures in different countries. Companies in different countries will face different constraints with respect to risk taking ability, access to capital, and ability to return earnings to shareholders. There's no reason to expect that stock returns in different countries will converge over time if we accept that their return structures are intrinsically different, just like stocks and bonds.

To the original question of when international stocks will outperform US - I think we would need to see political change, deregulation, and a capitalist oriented cultural movement in other countries for this to happen. US companies tend to be more growth and risk oriented and will outperform in a future with positive economic performance. However, post-2008, US has also been shown to respond better and be less prone to crises. There is a lot of room for EU or China to reform and provide a better environment for stock market returns if they make it a priority.
Are companies like Shell and Nestle, that have vast global
operations yet happen to be headquartered in Europe, somehow bound to the regional constraints of where they happen to be headquartered?

I’d argue, no. These large multinational megacorps that dominate international funds have wide exposure to global operations and already act in accordance with that.
You cherry picked from among the few very large cap stocks in ex-US indexes that have that kind of international footprint and are domiciled (and regulated) by European governments who share a similar outlook towards business to that of the US.

But your picks also are companies that fall into the category of extractive industry and cyclical (Shell) and Consumer Defensive (slow growing, mature, unlikely to provide much growth--Nestle.) You could have cited Unilever, too. But If you go down the list of large cap international stocks there are precious few like them.

These aren't the stocks that power the kinds of huge, speculative gains that have been driving markets for the last 30 years, unless you think that investors will suddenly all decide to invest for dividends. Because that is the kind of investor a company like Shell or Nestle attracts. It is also worth noting that right now Nestle is as overvalued, or possibly MORE overvalued than the US food companies I currently invest in. Every investor who bought into Shell since 2008 has been underwater on their investment at all times since then. These do not look like the kind of companies that would propel an index fund to where it would outperform the US large cap indexes.
I’m not cherry picking, they were just a few examples. I wasn’t highlighting them for their brilliant ability to outperform, only that I don’t see any reason why they are at a competitive disadvantage to similar companies headquartered in the US.

Go through the list of the top holdings of VTIAX and you see that it is not only dominated by huge multinationals in certain sectors like cyclicals, but it also has an abundance of high growth tech, predominantly in Asia.

However, I don’t see any reason why I should avoid investing in companies that are mature. Do these companies somehow not innovate? Do they not try and become more efficient? Investors are notorious for overpaying for growth, and some of the best returns have been companies that are completely shunned for various reasons (see: tobacco).

This is all to say that I see no compelling evidence that over the long term stocks headquartered in the US will meaningfully outperform given the current delta in valuations.
ND brings up a good point about the internationality of these companies. To this, I think we would be apt to highlight that geographic dispersion of businesses is usually correlated with country of domicile. I didn't have these figures on hand so I had to look these up - but it looks like, for example, that Nestle only derives 25% of its revenue from the US, but General Mills, which came to mind as a direct parallel, derives 80% of its revenue from the US. The reasons for this might be tradition, appearance of patriotism, or political ties between the country of domicile and its foreign markets. Certainly, Nestle and General Mills would face different business environments based on how history has affected their contemporary states.
Dave55
Posts: 2018
Joined: Tue Sep 03, 2013 2:51 pm

Re: In what condition, will international significantly overperform US?

Post by Dave55 »

physixfan wrote: Wed Mar 31, 2021 12:40 am I only invest in two countries, the US and China. The other countries may be good places to live in, but I don't see a future that their stock markets or economies can outperform US/China in the long term.
physixfan what ETF or mutual fund do use for China?

Dave
"Reality always wins, your only job is to get in touch with it." Wilfred Bion
gblack
Posts: 147
Joined: Sat Aug 31, 2019 12:39 am

Re: In what condition, will international significantly overperform US?

Post by gblack »

I confess to knowing nothing, but isn't it within the realm of possibilities that the next Tesla, Facebook, or Google is created somewhere else in the world like Germany, South Korea, China, India, or the UK?
TheDoctor91
Posts: 158
Joined: Thu Feb 25, 2021 11:43 am

Re: In what condition, will international significantly overperform US?

Post by TheDoctor91 »

You can still benefit from international diversification through rebalancing between markets during periods of being under and overvalued.

Eg throughout the late 90s you would be selling off overvalued us positions for undervalued international stocks.

When would international significantly outperform? If US gets way overvalued again and comes down.

Or an interior collapse in the way corporations are run and shareholders receive benefits. Massive corporate tax increases, wealth taxes, rise of socialism and communism. A major US disaster. Asian tech dominating the world instead of US.
Da5id
Posts: 5066
Joined: Fri Feb 26, 2016 7:20 am

Re: In what condition, will international significantly overperform US?

Post by Da5id »

In response to the OP, I assume there is some market valuation differential at which investing in the US and international markets is equivalent in terms of risk adjusted returns. I don't know if that is true at the current valuations, but it presumably is true at some point. Don't care either, as I'm not trying to get the best possible return. I'm trying to also cover for risks I can reasonably diversify away, which include "US underperformance due to whatever 'unforeseen' reason". But wouldn't argue with people who want to act differently at this point, as past threads have shown that to be fruitless.

I'd also note that threads about "why international" or "why value stocks" tend to come up when those asset classes have underperformed. Not sure that it is the best way to handle ones investments, but again you do you.
hi_there
Posts: 1182
Joined: Sat Aug 29, 2020 7:00 pm

Re: In what condition, will international significantly overperform US?

Post by hi_there »

gblack wrote: Wed Mar 31, 2021 2:22 pm I confess to knowing nothing, but isn't it within the realm of possibilities that the next Tesla, Facebook, or Google is created somewhere else in the world like Germany, South Korea, China, India, or the UK?
It's certainly possible, but then we would have to ask why they haven't done so already, while US has in series, produced MSFT, AAPL, TSLA, AMZN, FB, GOOGL... For Germany or UK, something different must be preventing them from producing this kind of business innovation and/or rapidly bringing it to a huge scale.

Of the countries you mentioned, China has the best chance of becoming a technology superpower. In fact, some Chinese technology and other companies already operate on a huge scale domestically. However, for the foreseeable future, most of their innovations will be deployed first to the huge Chinese market and a huge majority of investment gains will be captured by the state and insiders.

China also doesn't really have to produce anything really innovative at the moment, since their economy is still largely underdeveloped and has a high return on capital. They can get better returns by copying US technology, which can be done cheaply and quickly, and rapidly deploying it to underserved areas.
rockstar
Posts: 6326
Joined: Mon Feb 03, 2020 5:51 pm

Re: In what condition, will international significantly overperform US?

Post by rockstar »

I think, we need companies to start growing overseas. I also think we need rates high overseas than domestically. Neither seem really possible right now unless you look at emerging markets, where I'd rather buy bonds than equities.
000
Posts: 8211
Joined: Thu Jul 23, 2020 12:04 am

Re: In what condition, will international significantly overperform US?

Post by 000 »

OP I think this is the question you should be asking yourself:

Am I confident enough about the risks involved to exclude thousands of stocks and dozens of countries?
User avatar
abuss368
Posts: 27850
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: In what condition, will international significantly overperform US?

Post by abuss368 »

Dave55 wrote: Wed Mar 31, 2021 1:57 pm
physixfan wrote: Wed Mar 31, 2021 12:40 am I only invest in two countries, the US and China. The other countries may be good places to live in, but I don't see a future that their stock markets or economies can outperform US/China in the long term.
physixfan what ETF or mutual fund do use for China?

Dave
A few years ago Burton Malkiel, in an updated edition of “A Random Walk Down Wall Street” recommended a dedicated China ETF. You can Google for more information. Sometime thereafter, that recommendation was removed.

Tony
John C. Bogle: “Simplicity is the master key to financial success."
User avatar
abuss368
Posts: 27850
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: In what condition, will international significantly overperform US?

Post by abuss368 »

Ocean77 wrote: Wed Mar 31, 2021 10:53 am
frand wrote: Wed Mar 31, 2021 9:53 am There is a difference though. I can see clearly when Value over-perform Growth, when Small Cap over-perform Large Cap, but I can't see when International over-perform US. That's why I ask this question.

Ocean77 wrote: Tue Mar 30, 2021 6:38 pm
This was an analogy, but you can apply it to almost any asset class comparison - US/international, Value/Growth, etc. It is impossible to predict when any such shift may start. The best indication may be to just count the number of threads on sites such as ours asking if it makes sense to get out of the [Fill in recently underperforming asset class here].
Image
This graph is very useful. Granted the past may not predict the future.

Tony
John C. Bogle: “Simplicity is the master key to financial success."
User avatar
physixfan
Posts: 243
Joined: Wed Apr 03, 2019 4:09 pm

Re: In what condition, will international significantly overperform US?

Post by physixfan »

Dave55 wrote: Wed Mar 31, 2021 1:57 pm
physixfan wrote: Wed Mar 31, 2021 12:40 am I only invest in two countries, the US and China. The other countries may be good places to live in, but I don't see a future that their stock markets or economies can outperform US/China in the long term.
physixfan what ETF or mutual fund do use for China?

Dave
ASHR+MCHI
ASHR is for China A shares, MCHI is for Chinese companies listed in the US and HK.
trigger08
Posts: 117
Joined: Wed Aug 15, 2007 1:58 pm
Location: HK

Re: In what condition, will international significantly overperform US?

Post by trigger08 »

gblack wrote: Wed Mar 31, 2021 2:22 pm I confess to knowing nothing, but isn't it within the realm of possibilities that the next Tesla, Facebook, or Google is created somewhere else in the world like Germany, South Korea, China, India, or the UK?
This. And not only that, but multinational companies have a great deal of flexibility in determining where they are domiciled and where they list their shares (see the recent Deliveroo IPO flop in London). US-listed equities have done well due to tech over the last few decades but who is to say that will continue?
User avatar
Peculiar_Investor
Site Admin
Posts: 2445
Joined: Thu Oct 20, 2011 12:23 am
Location: Calgary, AB 🇨🇦
Contact:

Re: In what condition, will international significantly overperform US?

Post by Peculiar_Investor »

Ocean77 wrote: Wed Mar 31, 2021 10:53 am Image
Can you provide a source for this chart? It seems helpful but additional context would be appreciated.

For example, as returns total return or price return?
Normal people… believe that if it ain’t broke, don’t fix it. Engineers believe that if it ain’t broke, it doesn’t have enough features yet. – Scott Adams
User avatar
Ocean77
Posts: 800
Joined: Wed Oct 23, 2019 3:20 pm

Re: In what condition, will international significantly overperform US?

Post by Ocean77 »

Peculiar_Investor wrote: Thu Apr 01, 2021 8:56 am
Ocean77 wrote: Wed Mar 31, 2021 10:53 am Image
Can you provide a source for this chart? It seems helpful but additional context would be appreciated.

For example, as returns total return or price return?
Sure, it's from this article: https://www.laminarwealth.com/blog/the- ... nal-stocks
30% US Stocks | 30% Int Stocks | 40% Bonds
Northern Flicker
Posts: 15365
Joined: Fri Apr 10, 2015 12:29 am

Re: In what condition, will international significantly overperform US?

Post by Northern Flicker »

Unless you hold non-US equities at world market cap or greater, you should be hoping for US outperformance. I hold US equities at 75% of equities. This is assuming that US equities will do well, but diversifying the risk that they fail to do so. Success of the strategy is not synonymous with non-US overperformance.
Nathan Drake
Posts: 6235
Joined: Mon Apr 11, 2011 12:28 am

Re: In what condition, will international significantly overperform US?

Post by Nathan Drake »

Northern Flicker wrote: Thu Apr 01, 2021 11:42 pm Unless you hold non-US equities at world market cap or greater, you should be hoping for US outperformance. I hold US equities at 75% of equities. This is assuming that US equities will do well, but diversifying the risk that they fail to do so. Success of the strategy is not synonymous with non-US overperformance.
That’s like saying if you hold only Tesla you should hope for outperformance.

Well, of course...but hoping only gets you so far. You need to be planning appropriately for if that outperformance does not materialize
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
Da5id
Posts: 5066
Joined: Fri Feb 26, 2016 7:20 am

Re: In what condition, will international significantly overperform US?

Post by Da5id »

Nathan Drake wrote: Fri Apr 02, 2021 12:06 am
Northern Flicker wrote: Thu Apr 01, 2021 11:42 pm Unless you hold non-US equities at world market cap or greater, you should be hoping for US outperformance. I hold US equities at 75% of equities. This is assuming that US equities will do well, but diversifying the risk that they fail to do so. Success of the strategy is not synonymous with non-US overperformance.
That’s like saying if you hold only Tesla you should hope for outperformance.

Well, of course...but hoping only gets you so far. You need to be planning appropriately for if that outperformance does not materialize
So only owning US is in some way like only holding Tesla? Really? US only investing isn't my choice, but it is quite diversified and via international sales does have some int'l exposure. Per https://www.vanguard.com/pdf/ISGGEB.pdf you get the diversification benefits of owning int'l by 30%-40%. The Tesla analogy is kind of silly IMO.
User avatar
Anon9001
Posts: 1884
Joined: Fri Dec 20, 2019 8:28 am
Location: بھارت

Re: In what condition, will international significantly overperform US?

Post by Anon9001 »

Da5id wrote: Fri Apr 02, 2021 6:45 am So only owning US is in some way like only holding Tesla? Really? US only investing isn't my choice, but it is quite diversified and via international sales does have some int'l exposure. Per https://www.vanguard.com/pdf/ISGGEB.pdf you get the diversification benefits of owning int'l by 30%-40%. The Tesla analogy is kind of silly IMO.
I would not want to own 60-70% in a Economy which is having a fertility rate below replacement rate currently and requires immigration for demographics to not look similar to Japan and Europe. ACWI/FTSE All World has much more diversified revenue exposure with only 29.9% coming from North America and majority of revenue exposure ie 42% coming from Emerging Economies which have good demographics and high GDP Growth unlike USA, Europe and Japan.
Image
Land/Real Estate:89.4% (Land/RE is Inheritance which will be recieved in 10-20 years) Equities:7.6% Fixed Income:1.7% Gold:0.8% Cryptocurrency:0.5%
Da5id
Posts: 5066
Joined: Fri Feb 26, 2016 7:20 am

Re: In what condition, will international significantly overperform US?

Post by Da5id »

Anon9001 wrote: Fri Apr 02, 2021 8:30 am
I would not want to own 60-70% in a Economy which is having a fertility rate below replacement rate currently and requires immigration for demographics to not look similar to Japan and Europe. ACWI/FTSE All World has much more diversified revenue exposure with only 29.9% coming from North America and majority of revenue exposure ie 42% coming from Emerging Economies which have good demographics and high GDP Growth unlike USA, Europe and Japan.
Cool. You do you.
wootwoot
Posts: 670
Joined: Tue Jan 27, 2009 6:37 pm

Re: In what condition, will international significantly overperform US?

Post by wootwoot »

Anon9001 wrote: Fri Apr 02, 2021 8:30 am
Da5id wrote: Fri Apr 02, 2021 6:45 am So only owning US is in some way like only holding Tesla? Really? US only investing isn't my choice, but it is quite diversified and via international sales does have some int'l exposure. Per https://www.vanguard.com/pdf/ISGGEB.pdf you get the diversification benefits of owning int'l by 30%-40%. The Tesla analogy is kind of silly IMO.
I would not want to own 60-70% in a Economy which is having a fertility rate below replacement rate currently and requires immigration for demographics to not look similar to Japan and Europe. ACWI/FTSE All World has much more diversified revenue exposure with only 29.9% coming from North America and majority of revenue exposure ie 42% coming from Emerging Economies which have good demographics and high GDP Growth unlike USA, Europe and Japan.
Image
Do you base all of your investing on fertility rates? How does that correlate to GDP growth?
User avatar
Anon9001
Posts: 1884
Joined: Fri Dec 20, 2019 8:28 am
Location: بھارت

Re: In what condition, will international significantly overperform US?

Post by Anon9001 »

wootwoot wrote: Fri Apr 02, 2021 8:43 am Do you base all of your investing on fertility rates? How does that correlate to GDP growth?
Of course part of the reason I tilt aggressively to domestic stocks is India is having TFR above replacement rate. If it was not having that I would not be so home biased. My understanding is GDP Growth depends on Population and Productivity Growth. If the former is not growing the later would have to do the heavy lifting.
Land/Real Estate:89.4% (Land/RE is Inheritance which will be recieved in 10-20 years) Equities:7.6% Fixed Income:1.7% Gold:0.8% Cryptocurrency:0.5%
Nathan Drake
Posts: 6235
Joined: Mon Apr 11, 2011 12:28 am

Re: In what condition, will international significantly overperform US?

Post by Nathan Drake »

Da5id wrote: Fri Apr 02, 2021 6:45 am
Nathan Drake wrote: Fri Apr 02, 2021 12:06 am
Northern Flicker wrote: Thu Apr 01, 2021 11:42 pm Unless you hold non-US equities at world market cap or greater, you should be hoping for US outperformance. I hold US equities at 75% of equities. This is assuming that US equities will do well, but diversifying the risk that they fail to do so. Success of the strategy is not synonymous with non-US overperformance.
That’s like saying if you hold only Tesla you should hope for outperformance.

Well, of course...but hoping only gets you so far. You need to be planning appropriately for if that outperformance does not materialize
So only owning US is in some way like only holding Tesla? Really? US only investing isn't my choice, but it is quite diversified and via international sales does have some int'l exposure. Per https://www.vanguard.com/pdf/ISGGEB.pdf you get the diversification benefits of owning int'l by 30%-40%. The Tesla analogy is kind of silly IMO.
It’s not exactly like owning Tesla, no, but it’s comparable to someone only owning Japanese stocks just because they became the largest market cap and were going to dominate the world....until they didn’t. And if you had only invested in that hot market with rich valuations you would have done fairly poorly over the subsequent decades.
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
Da5id
Posts: 5066
Joined: Fri Feb 26, 2016 7:20 am

Re: In what condition, will international significantly overperform US?

Post by Da5id »

Nathan Drake wrote: Fri Apr 02, 2021 9:00 am
Da5id wrote: Fri Apr 02, 2021 6:45 am
Nathan Drake wrote: Fri Apr 02, 2021 12:06 am
Northern Flicker wrote: Thu Apr 01, 2021 11:42 pm Unless you hold non-US equities at world market cap or greater, you should be hoping for US outperformance. I hold US equities at 75% of equities. This is assuming that US equities will do well, but diversifying the risk that they fail to do so. Success of the strategy is not synonymous with non-US overperformance.
That’s like saying if you hold only Tesla you should hope for outperformance.

Well, of course...but hoping only gets you so far. You need to be planning appropriately for if that outperformance does not materialize
So only owning US is in some way like only holding Tesla? Really? US only investing isn't my choice, but it is quite diversified and via international sales does have some int'l exposure. Per https://www.vanguard.com/pdf/ISGGEB.pdf you get the diversification benefits of owning int'l by 30%-40%. The Tesla analogy is kind of silly IMO.
It’s not exactly like owning Tesla, no, but it’s comparable to someone only owning Japanese stocks just because they became the largest market cap and were going to dominate the world....until they didn’t. And if you had only invested in that hot market with rich valuations you would have done fairly poorly over the subsequent decades.
The person you responded to said they owned 25% int'l. So why straw man that to owning 100% of a single country. And owning a broad index of US stocks is just "not exactly like owning Tesla"? Um.
User avatar
Anon9001
Posts: 1884
Joined: Fri Dec 20, 2019 8:28 am
Location: بھارت

Re: In what condition, will international significantly overperform US?

Post by Anon9001 »

Productivity Growth is not going to save GDP Growth of US, Japan and Europe considering it has been declining since 1960. A person is going to do US Tilt of 100% US stocks is going to get killed by demographics of USA unless USA still is continuing immigration into the future.Credits to poster SimpleGift for the chart.
Image
Land/Real Estate:89.4% (Land/RE is Inheritance which will be recieved in 10-20 years) Equities:7.6% Fixed Income:1.7% Gold:0.8% Cryptocurrency:0.5%
tibbitts
Posts: 23728
Joined: Tue Feb 27, 2007 5:50 pm

Re: In what condition, will international significantly overperform US?

Post by tibbitts »

Anon9001 wrote: Fri Apr 02, 2021 8:52 am
wootwoot wrote: Fri Apr 02, 2021 8:43 am Do you base all of your investing on fertility rates? How does that correlate to GDP growth?
Of course part of the reason I tilt aggressively to domestic stocks is India is having TFR above replacement rate. If it was not having that I would not be so home biased. My understanding is GDP Growth depends on Population and Productivity Growth. If the former is not growing the later would have to do the heavy lifting.
It's interesting how, even over a relatively short timeframe, population growth and diversity have gone from being commonly viewed as economic negatives to positives. So now I pretty much disregard flavor-of-the-day macro considerations.
Seasonal
Posts: 3045
Joined: Sun May 21, 2017 1:49 pm

Re: In what condition, will international significantly overperform US?

Post by Seasonal »

One major point in favor of international is the number of people who believe the US will significantly outperform.

The more people who act on such belief the higher US prices will rise relative to international. This has been very helpful recently - as shown earlier in this thread US has outperformed largely through multiple expansion - but it doesn't bode well for future US outperformance, unless you believe multiples will expand without limit. Of course, you may know things about the US relative to other countries that are not known by others, but nothing in this thread is in that category.
KyleAAA
Posts: 9498
Joined: Wed Jul 01, 2009 5:35 pm
Contact:

Re: In what condition, will international significantly overperform US?

Post by KyleAAA »

Keep in mind "X has outperformed Y for 20 years" type comparisons are VERY sensitive to the last year or two. If US stocks were to lose 15% next year and international stocks gain 20%, that alone would flip the script. There doesn't need to be some significant change in condition. US valuations are high and international valuations are low. That alone could reverse their fortunes in very short order. You won't be able to predict it in advance.
Nathan Drake
Posts: 6235
Joined: Mon Apr 11, 2011 12:28 am

Re: In what condition, will international significantly overperform US?

Post by Nathan Drake »

Da5id wrote: Fri Apr 02, 2021 9:11 am
Nathan Drake wrote: Fri Apr 02, 2021 9:00 am
Da5id wrote: Fri Apr 02, 2021 6:45 am
Nathan Drake wrote: Fri Apr 02, 2021 12:06 am
Northern Flicker wrote: Thu Apr 01, 2021 11:42 pm Unless you hold non-US equities at world market cap or greater, you should be hoping for US outperformance. I hold US equities at 75% of equities. This is assuming that US equities will do well, but diversifying the risk that they fail to do so. Success of the strategy is not synonymous with non-US overperformance.
That’s like saying if you hold only Tesla you should hope for outperformance.

Well, of course...but hoping only gets you so far. You need to be planning appropriately for if that outperformance does not materialize
So only owning US is in some way like only holding Tesla? Really? US only investing isn't my choice, but it is quite diversified and via international sales does have some int'l exposure. Per https://www.vanguard.com/pdf/ISGGEB.pdf you get the diversification benefits of owning int'l by 30%-40%. The Tesla analogy is kind of silly IMO.
It’s not exactly like owning Tesla, no, but it’s comparable to someone only owning Japanese stocks just because they became the largest market cap and were going to dominate the world....until they didn’t. And if you had only invested in that hot market with rich valuations you would have done fairly poorly over the subsequent decades.
The person you responded to said they owned 25% int'l. So why straw man that to owning 100% of a single country. And owning a broad index of US stocks is just "not exactly like owning Tesla"? Um.
...I’m replying to your post which says “so only owning US”...
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
Da5id
Posts: 5066
Joined: Fri Feb 26, 2016 7:20 am

Re: In what condition, will international significantly overperform US?

Post by Da5id »

Nathan Drake wrote: Fri Apr 02, 2021 9:48 am
Da5id wrote: Fri Apr 02, 2021 9:11 am
The person you responded to said they owned 25% int'l. So why straw man that to owning 100% of a single country. And owning a broad index of US stocks is just "not exactly like owning Tesla"? Um.
...I’m replying to your post which says “so only owning US”...
Your Tesla analogy, which I still can't believe you are defending, was in response to someone who said "I hold US equities at 75% of equities.". But this is getting kinda silly.
aristotelian
Posts: 12277
Joined: Wed Jan 11, 2017 7:05 pm

Re: In what condition, will international significantly overperform US?

Post by aristotelian »

If the US outperforms for a while and becomes overvalued, you could at some point see a reversal. For a moment it looked like that might have been happening with tech valuations. We will see if it continues.
tradri
Posts: 606
Joined: Tue Mar 23, 2021 5:42 pm

Re: In what condition, will international significantly overperform US?

Post by tradri »

What is the point of having such discussions when you can simply own everything through an ETF like VT. That way your holdings will change as the world changes... no need to prefer one country over another...
User avatar
watchnerd
Posts: 13614
Joined: Sat Mar 03, 2007 10:18 am
Location: Gig Harbor, WA, USA

Re: In what condition, will international significantly overperform US?

Post by watchnerd »

hi_there wrote: Wed Mar 31, 2021 11:12 am I would argue that US and International stocks are not even the same asset class
A new asset class?

Wow, that really would be something given they show similar factor behaviors.

And are highly correlated (0.90 for developed markets).

It's sure a lot easier to explain these amazing coincidences if they're actually the same asset class.

Otherwise we're left with:

"A new asset class that sure looks and acts like a stock but isn't a stock because of...well, nothing we can point to"
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
tradri
Posts: 606
Joined: Tue Mar 23, 2021 5:42 pm

Re: In what condition, will international significantly overperform US?

Post by tradri »

watchnerd wrote: Fri Apr 02, 2021 11:06 am
hi_there wrote: Wed Mar 31, 2021 11:12 am I would argue that US and International stocks are not even the same asset class
A new asset class?

Wow, that really would be something given they show similar factor behaviors.

And are highly correlated (0.90 for developed markets).

It's sure a lot easier to explain these amazing coincidences if they're actually the same asset class.

Otherwise we're left with:

"A new asset class that sure looks and acts like a stock but isn't a stock because of...well, nothing we can point to"
Maybe there is something special about holding stocks in a country that has the ability to pump the stock market by inflating the world's reserve currency. ;)
User avatar
watchnerd
Posts: 13614
Joined: Sat Mar 03, 2007 10:18 am
Location: Gig Harbor, WA, USA

Re: In what condition, will international significantly overperform US?

Post by watchnerd »

KyleAAA wrote: Fri Apr 02, 2021 9:36 am If US stocks were to lose 15% next year and international stocks gain 20%, that alone would flip the script.
That would be quite the divergence from current correlation behaviors.

Vanguard thinks the more likely scenario is that US just has valuation contraction.
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
User avatar
watchnerd
Posts: 13614
Joined: Sat Mar 03, 2007 10:18 am
Location: Gig Harbor, WA, USA

Re: In what condition, will international significantly overperform US?

Post by watchnerd »

tradri wrote: Fri Apr 02, 2021 11:13 am

Maybe there is something special about holding stocks in a country that has the ability to pump the stock market by inflating the world's reserve currency. ;)
There might be, but that wouldn't make it a separate asset class.

That would just affect factors like value.

A new asset class requires a behavior that can't be modeled or explained via existing factors using regression analysis.
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
junior
Posts: 1452
Joined: Wed Sep 10, 2008 6:14 pm
Contact:

Re: In what condition, will international significantly overperform US?

Post by junior »

You don't need any fancy condition. U.S. stocks can simply be overpriced. That's all it takes. The biggest example of this is Japan's bubble in the 80s. You don't need fancy conditions to posit things that are overpriced can go back to normal.
Nathan Drake
Posts: 6235
Joined: Mon Apr 11, 2011 12:28 am

Re: In what condition, will international significantly overperform US?

Post by Nathan Drake »

Da5id wrote: Fri Apr 02, 2021 9:56 am
Nathan Drake wrote: Fri Apr 02, 2021 9:48 am
Da5id wrote: Fri Apr 02, 2021 9:11 am
The person you responded to said they owned 25% int'l. So why straw man that to owning 100% of a single country. And owning a broad index of US stocks is just "not exactly like owning Tesla"? Um.
...I’m replying to your post which says “so only owning US”...
Your Tesla analogy, which I still can't believe you are defending, was in response to someone who said "I hold US equities at 75% of equities.". But this is getting kinda silly.
The Tesla post was simply pointing out that hopes aren’t a good substitute for a well diversified plan. You’re reading a bit too much into it.

I’m not saying 75% US is wrong for an individual. In this scenario of course you hope outperformance continues, but your investment strategy should assume that it may not. Maybe after weighing the pros and cons you still decide it’s appropriate, which is totally fine. That’s all I’m saying
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
User avatar
Anon9001
Posts: 1884
Joined: Fri Dec 20, 2019 8:28 am
Location: بھارت

Re: In what condition, will international significantly overperform US?

Post by Anon9001 »

I am also sceptical of the International exposure via revenue exposure as it ignores countries do favour their local companies over foreign companies. China is well known example of this. I personally am bullish on Indian Economy relative to Chinese, USA and European Economies so I over-weight the Indian companies and not assume ACWI will give me good exposure to Indian Economy via revenue exposure.
Land/Real Estate:89.4% (Land/RE is Inheritance which will be recieved in 10-20 years) Equities:7.6% Fixed Income:1.7% Gold:0.8% Cryptocurrency:0.5%
hi_there
Posts: 1182
Joined: Sat Aug 29, 2020 7:00 pm

Re: In what condition, will international significantly overperform US?

Post by hi_there »

watchnerd wrote: Fri Apr 02, 2021 11:06 am
hi_there wrote: Wed Mar 31, 2021 11:12 am I would argue that US and International stocks are not even the same asset class
A new asset class?

Wow, that really would be something given they show similar factor behaviors.

And are highly correlated (0.90 for developed markets).

It's sure a lot easier to explain these amazing coincidences if they're actually the same asset class.

Otherwise we're left with:

"A new asset class that sure looks and acts like a stock but isn't a stock because of...well, nothing we can point to"
You are free to draw the line between asset classes wherever you want. Classification is an arbitrary distinction, but stocks across different national jurisdictions can have different risks. A portfolio of 100% Chinese stocks might not be as suitable for most investors as a portfolio of 100% S&P 500 stocks. These stocks are different somehow - and nationality might be one convenient way to differentiate them. You could call people of Irish, French, or English decent all just white people, or you could choose not to. It's up to you.
Post Reply