The tendency of investors to concentrate their investments in their home country due to familiarity is a well-documented phenomenon. Consider the statistics below to see just how prevalent home bias is for U.S. investors:
Source: Nationwide
Given the incredibly strong returns in the U.S. over the past 9 years, home bias has probably worked out just fine for U.S. investors. However, will the U.S. continue to outpace global equity markets in the years ahead? It is possible. It’s also possible that we see some reversion to the mean and international markets outpace U.S. markets.
As shown in the table below, U.S. stocks outperformed Emerging Markets and Developed International Markets during much of the last decade. However, things changed in 2017 with the best performance coming from Emerging Markets, followed by Developed International Markets. That trend has continued so far in 2018.
Updated through 4/19/18. Returns are price return only, not inclusive of dividends or transaction costs. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss. SPY is the S&P 500 SPDR ETF, EEM is the iShares MSCI Emerging Markets ETF, and EFA is the iShares MSCI EAFE Index.
It is worth considering two of the reasons that International equities may shine in the years ahead:
- Valuations are much lower internationally than in the U.S.
- Weakness in the U.S. Dollar. A weak dollar acts as a tailwind for U.S. investors in international securities.
As of 4/19/18
Until next time, cheers!
Jim