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 they 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 why now is the time to increase you International allocations.
1. YTD Performance
Through 05/31/2017, 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&P500.
History suggests that 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 and Momentum has shifted to International Markets
According to Point and Figure charts and relative strength, momentum for International markets has finally broken out. This is shown by the four stacked green X’s in the chart below. Point and Figure charts analyze supply and demand of an investment, while evaluating price trends over the long term to determine entry and exit points. PFP charting show that now is the time to buy into International.
3. History as a Guide
We’ve written about the cyclical nature of U.S. market performance vs International market performance before. You can find that article here: A Differentiated ETF Approach to Managing Global Equities.
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, stretched (to say the least) significantly versus history where the average length of a U.S. outperformance cycles is only 68 months.
These 3 reasons help show that this historically cyclical nature has “turned” and now it is time for International markets to have their run.