Surprisingly, many foreign markets are way ahead of the U.S. in year-to-date performance
The global stock market's year-to-date returns provide yet another lesson in how unpredictable investing can be.
Global fuel shortages were supposed to be especially bad news for non-U.S. markets, since the U.S. is a net energy exporter and therefore better able to withstand disruptions such as the closing of the Strait of Hormuz.
But try telling that to non-U.S. markets, many of which have beaten the S&P 500 SPX in year-to-date performance - as you can see from the below chart.
To be sure, some countries' markets have been hit hard, especially in Asia. But, overall, non-U.S. markets are ahead. The iShares Asia 50 ETF AIA, comprised of the 50 Asian companies with the largest market capitalizations, has produced a year-to-date return of 41.2% - more than triple the S&P 500's comparable return of 13.7%. The iShares MSCI All-Country Asia ex-Japan ETF AAXJ has produced a 23.0% return. And even Japan, whose currency (USDJPY) had to be rescued this past week, is beating the U.S.
Particularly noteworthy is the strong year-to-date performance of emerging-market value stocks - 30.1%, more than double the S&P 500's. These are out-of-favor stocks from countries that are least able to withstand energy disruptions.
Furthermore, the impressive performance of many non-U.S. stock markets came despite a stronger dollar, which creates headwinds for dollar-denominated investors in those markets. Despite widespread predictions at the beginning of the year that the dollar would significantly decline in value against foreign currencies, the U.S. Dollar Index DXY is slightly ahead in year-to-date performance.
There are two major investment lessons to learn from the unexpectedly strong year-to-date performance of many non-U.S. stock markets. The first is that valuations matter. The U.S. stock market at the beginning of this year had the highest cyclically adjusted price-to-earnings ratio $(CAPE)$ among a group of more than two dozen developed countries, according to Barclays data - 70% higher, in fact, than the average CAPE of those other countries.
The second lesson is the virtue of diversification. Since the markets are so unpredictable, it makes sense to divide your eggs among many baskets rather than bet on just one. This would be good advice even if the U.S. market weren't so much more overvalued than non-U.S. markets. But given the overvaluation, diversification is even more important than ever.
Perhaps the simplest way to gain exposure to non-U.S. stocks is by investing in an ETF benchmarked to a non-U.S. stock-market index. One with a low expense ratio is the Vanguard Total International Stock ETF VXUS, which charges just 0.05% per year. If you want to try your hand at picking individual non-U.S. stocks, consider the table below, which contains all non-U.S. stocks recommended by at least one of the investment newsletters monitored by my performance-auditing firm.
Ticker Stock Country of headquarters ACN Accenture Ireland GOLF Acushnet Holdings South Korea AER AerCap Holdings Ireland ALIZY Allianz Germany DOX Amdocs Guernsey APTV Aptiv Switzerland ACGL Arch Capital Group Bermuda AXAHY AXA France BNS Bank of Nova Scotia Canada BIRK Birkenstock Holding Luxembourg BP BP United Kingdom BN Brookfield Canada CMPR Cimpress Ireland DMC Del Monte Cayman Islands ETN Eaton Ireland HMC Honda Motor Japan ITRN Ituran Location & Control Israel PHG Koninklijke Philips Netherlands KLIC Kulicke & Soffa Industries Singapore LOGI Logitech International Switzerland MDT Medtronic Ireland NVO Novo Nordisk Denmark NTR Nutrien Canada NXPI NXP Semiconductors Netherlands ONON On Holding Switzerland STX Seagate Technology Holdings Singapore SIEGY Siemens Germany SW Smurfit Westrock Ireland TSM Taiwan Semiconductor Manufacturing Taiwan TU Telus Canada TTE TotalEnergies France TW Tradeweb Markets United Kingdom VWAGY Volkswagen Germany Source: Hulbert Ratings
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com.
-Mark Hulbert
Comments