A winning investment approach few take seriously. Oh, and bonds might crash.
We investors based in the U.S. have become jaded. There are many versions of how to answer that, but the one I’ll focus on here is the belief that the U.S. stock market is at best a perennial performance juggernaut, or at the very least, the “cleanest dirty shirt in the laundry” to steal a classic Wall Street expression. I suspect a small portion of the investor population based in the U.S. realizes that even during the recent strong performance of the U.S. market (by historical standards), to assume that is where all the returns are to be had, this far into the market cycle, is simply a mistake.
That’s why I am pointing it out briefly here, but will be writing on this topic much more in the near future. And I’m doing so for the best reason anyone could expect: because I think this is where some of the best returns will be in the coming years, regardless of how well the U.S. stock market performs.
One important measuring stick to me is how an investment has done since the start of 2022. That 27-month period has seen the S&P 500 and Nasdaq drop by 25% and 33% respectively, then mount a furious comeback…just to break even…until the late 2023/early 2024 runup.
The world stock markets have a lot to offer. And I’m going there with my money.
I recently asked some investors I’ve known for a long time what they thought the total return of the Nasdaq 100 (QQQ) was since the start of 2022. They were as shocked as most would be when I told them it was 9%. Not 9% a year, 9% total, including dividends, over 27 months. For SPY it is 12%, and if we use the equal-weight S&P 500, it is 5%. The average stock among the largest 1,000 US stocks (ETF is EQAL) has a 27-month return of -0.66%. I feel like there should be an extra 6 there, since the devil is in the details LOL.
What do single country ETFs do for U.S. and non-U.S. investors, and do they even exist? Well, since I track more than 70 different ones on my screen every day, that answers the second question. As for the first, what they offer is literally a world of diverse investment return patterns. And THAT is what every investor wants. A baseball pitcher can’t get too far with only one pitch, and an investor should also have as many “tools” in their research shed as they can.
Quick facts and a couple of charts to finish this intro to one of my favorite contemporary topics. During that period cited above, 1/1/22-4/10/24, when the average U.S. stock (1,000 of them) was underwater, more than half the foreign country stock markets I track via ETFs performed better. And about 40% of them outperformed SPY.
What’s just as important? All of the country ETFs that underperformed, but now sell at microscopic valuations compared to U.S. large cap stocks. But the “home country bias” is so strong, I wonder if many investors will ever realize just how much diversification benefit, and likely long-term return enhancement, there is to be had in this genre of investing.