Do international index funds still offer diversification benefits?

[naren]

@ohai

The other question, if you ask me, is whether you would want to invest outside the US in the first place at the moment.

Because you can’t base your investment strategy on “at the moment.”

That is called market timing and it’s a slope slipperier than Kim Kardashian’s never mind.

[former_trader]

@rawraw

Pretty sure they aren’t that correlated. US Stocks have been on a tear while the rest of the world is, well, mixed.

John Bogle did a reasearch on this. Over a 30 year period, doesn’t matter whether you hold all US, all Europe or all Japan. They had equal returns. Just more recently, you had Europe in the 70s, Japan in the 80s and the US in the 90s that were on a tear. In this decade, the US is back on a tear. Most likely Europe will be in the next decade once they get their house in order.

[rawraw]

@former_trader

@rawraw

Pretty sure they aren’t that correlated. US Stocks have been on a tear while the rest of the world is, well, mixed.

John Bogle did a reasearch on this. Over a 30 year period, doesn’t matter whether you hold all US, all Europe or all Japan. They had equal returns. Just more recently, you had Europe in the 70s, Japan in the 80s and the US in the 90s that were on a tear. In this decade, the US is back on a tear. Most likely Europe will be in the next decade once they get their house in order.

But are you sure that’s not just a coincidence? Happen to have a link?

I just can’t think of fundamnetal reasons to cause all countries to have the same returns.

[Sweep_the_Leg]

@rawraw

@former_trader

@rawraw

Pretty sure they aren’t that correlated. US Stocks have been on a tear while the rest of the world is, well, mixed.

John Bogle did a reasearch on this. Over a 30 year period, doesn’t matter whether you hold all US, all Europe or all Japan. They had equal returns. Just more recently, you had Europe in the 70s, Japan in the 80s and the US in the 90s that were on a tear. In this decade, the US is back on a tear. Most likely Europe will be in the next decade once they get their house in order.

But are you sure that’s not just a coincidence? Happen to have a link?

I just can’t think of fundamnetal reasons to cause all countries to have the same returns.

I would also like to see a source for this. I’ll look it up myself later today. I’m highly skeptical.

[naren]

CFA L3 had a table of stock market returns for all countries, IIRC US was not an exception by any means.

[Sweep_the_Leg]

@naren\_

CFA L3 had a table of stock market returns for all countries, IIRC US was not an exception by any means.

Over the last 40 years, guess how many years the U.S. has been the best performing equity market…

Answer: 1

[former_trader]

I believe Bogle wrote it in “Common Sense on Mutual Funds”.

[brain_wash_your_face]

I get an email with global equity, fixed and currency market returns daily. Here is some divergence for you, YTD through yesterday:

South Korea: -8.6%

India: 23.4%

EM Health Care (small index component): 22%

EM Materials: -8%

Turkey 10Y bond: 17.4%

Venezuala 10Y bond: -11.1%

Denmark: 21.6%

Norway: 4%

DM Health Care: 16.7%

DM Consumer Discretionary: -2.1%

US 10Y bond: 9.2%

Japan 10Y bond: 3.1%

So, this year it appears that markets are not very correlated at all. In fact one of the only common themes is that the USD is strengthening against basically every currency, and that is likely to continue.

I think hedged equity to USD makes a lot of sense right now. In fact, there is tons of offshore demand for products that do this. A lot of funds hedged JPY/USD after Abenomics came out and that made a lot of sense. Now, it is looking like you will see more USD hedged products in the US and more people using that tactic.

@Greenman, in fixed income it is pretty well understood by people who have studied these things that most of the return for EM debt has been determined by currency. It is going to be interesting to see what happens to a lot of EM companies that issued USD demoninated debt when the currency starts to move against them…especially for companies that have local currency revenues and no source of USD. Sounds a bit like '97.