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Old 04-02-2014, 01:10 PM   #21
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The correlation between U.S. stocks and EM stocks (e.g., VTSMX & VEIEX) is about 81.4% for the last 10 years. Thus, it is not uncorrelated. However, it might be a "good" buy since it took some beatings earlier.
If you look at more recent data, I think you will find a much different story. Last year, for example, emerging markets were far more closely correlated with the performance of long term U.S. government bonds than with the U.S. stock market. I stumbled upon this correlation in December, which is why I decided to look into increasing my emerging market allocation. So far it's worked out very well for me, although of course there is no guarantee that the low correlation between U.S. stocks and emerging markets will continue in the future.
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Old 04-02-2014, 01:32 PM   #22
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I own the Vanguard FTSE all world ex-US index fund for international equity exposure. Morningstar indicates that 20% of that fund is invested in EMs.
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Old 04-02-2014, 01:51 PM   #23
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Really? …. I guess we have slightly different definitions of what it means to be "on fire".
Sorry, I guess I used a different date range. If one charts from the low back in February everything is up 8%-11%:

Also don't forget about the March dividends available since Monday.
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Old 04-02-2014, 01:58 PM   #24
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If you look at more recent data, I think you will find a much different story. Last year, for example, emerging markets were far more closely correlated with the performance of long term U.S. government bonds than with the U.S. stock market. I stumbled upon this correlation in December, which is why I decided to look into increasing my emerging market allocation. So far it's worked out very well for me, although of course there is no guarantee that the low correlation between U.S. stocks and emerging markets will continue in the future.
Probably because they both went nowhere?
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Old 04-02-2014, 02:14 PM   #25
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Thanks for link with 2006 from Vanguard and it appears to be originally published in 2004. Kinda old, isn't it? And before Vanguard changed what they are calling emerging (Taiwan? South Korea?).
Yes, it's old. The EM weight is now close to 17%, which is larger than the recommended weight (10 - 15%) in the article.
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Old 04-02-2014, 02:50 PM   #26
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Sorry, I guess I used a different date range. If one charts from the low back in February everything is up 8%-11%
I guess you need to decide in your own mind what date range you are using. Your earlier post said that lots of things have been on fire in the last "couple of weeks", but now you are posting a chart of performance over a couple of months instead. I was simply pointing out that performance data fails to support your earlier post. Perhaps you just simply made a mental slip of confusing two weeks with two months, but what you actually wrote wasn't accurate.

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Also don't forget about the March dividends available since Monday.
Yes, the figures I quoted are dividend adjusted. The comparison would be even more one-sided in favor of emerging markets if I had ignored dividends.
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Old 04-02-2014, 02:58 PM   #27
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Probably because they both went nowhere?
It's not that simple. Not only did long term bonds have similar performance overall to emerging markets in 2013, but both asset classes also tracked each other quite closely in their day to day price movements. I am not trained in statistics, but I went so far as to download a full year of data and calculate a correlation coefficient. It was around .6 as I recall, so the correlation was surprisingly good for two apparently unrelated asset classes. I found a few articles that suggest the correlated performance was due to more than just chance. Apparently the Feds' moves toward tapering were putting pressure on emerging market debt. At least that was what I gathered from what I was able to read online.
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Old 04-02-2014, 03:28 PM   #28
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I guess you need to decide in your own mind what date range you are using. Your earlier post said that lots of things have been on fire in the last "couple of weeks", but now you are posting a chart of performance over a couple of months instead.
If one looks at the chart I posted, there is more than one line that was on fire the last couple of weeks.
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Old 04-02-2014, 04:16 PM   #29
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This site calculates correlation coefficients for lots of different stuff, including user specified tickers upon registration. It also can be set to several different time periods, updated monthly.

assetcorrelation.com
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Old 04-02-2014, 04:36 PM   #30
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If one looks at the chart I posted, there is more than one line that was on fire the last couple of weeks.
Really? May I inquire which lines you are referring to? As far as I can see, the lines on your chart include VBR and FSITX in addition to VTI, VEA and VWO. I have already given two week performance numbers for VTI, VEA and VWO, showing that VWO has trounced the other two over this (admittedly short) period. Extending the comparison, yahoo finance says that FSITX is up 0.17% from March 19 through market close on April 1 and VBR is up 1.15% over the same period. In the last two weeks VWO has outperformed these two securities by factors of 43.65 and 6.45 respectively.

You are certainly entitled to observe any modest price increase in a security and label it as being "on fire" if you so choose. However, you will excuse me if I fail to share your enthusiasm.
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Old 04-02-2014, 07:14 PM   #31
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An article by Yesim Tokat, Ph.D. from Vanguard recommends 10-15% of international holding to emerging allocation. A lots of postings in Boglehead forum shows 40-50% because EM is cheap relative to developed markets. Gus Sauter (ex-Vanguard chief investment officer) says that he allocates 100% of foreign holdings to emerging market. I am skeptical about allocating a significant portion to EM despite its potential returns.

What's your allocation to EM and why?
My Portfolio Watch report indicates that 18.6% of my portfolio is in international equities. Of that 18.6%, 24.2% is in emerging markets, which is slightly overweight compared to the 21.0% of international stocks in emerging markets.

I'm a bit surprised of the claim in the OP that Vanguard only recommends 10-15% of international holdings to emerging markets when their Portfolio Watch report indicates that 21.0% of international stocks are emerging market as in my experience they tend to recommend market weightings.

So overall emerging markets equities represent about 4.5% of my total portfolio.
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Old 04-02-2014, 07:28 PM   #32
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45% Equity / 26% of equity in Total Int'l. / 20% of Int'l in EM. EM represents <3% of total portfolio.
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Old 04-02-2014, 07:33 PM   #33
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I've got about the recommended allocation of EM's across my 401k, Roth, and IRA - they sure have been a drag on my portfolio the last couple of years, though.

Every time I log on and check the movement it is usually in the wrong direction...arggg.

If 2014 is the year of the EM...AFT....
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Old 04-02-2014, 10:59 PM   #34
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I'm a bit surprised of the claim in the OP that Vanguard only recommends 10-15% of international holdings to emerging markets when their Portfolio Watch report indicates that 21.0% of international stocks are emerging market as in my experience they tend to recommend market weightings.
The article from Vanguard was published in 2006. Thus, the recommendation is outdated. At the end of 2005, emerging markets made up about 13% of the value of global stock markets. Thus the suggested percentage seemed reasonable then.
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