International has been a real disappointment

[MrLoco]

Just looking at my International holdings and even though International only makes up 5% (Thank God) of my total equity holdings, I can't help but feel John Bogle was right. With many companies deriving significant revenue from international sales.....why own international companies? My reasoning was that since the headquarters of these companies were domiciled outside the USA, the only way to own them was to own an international fund/ETF.

But wow.......domestic funds have averaged 10-12% over the past 5 years....international a little over 1%. I realize that a big factor has been that emerging markets have gotten slaughtered along with ongoing problems in Europe and Japan along with currency risks but seriously.....1% average over the past 5 years

I know that past results are no guarantee of future returns and who knows what the future holds but is anyone seeing things differently?

 

[Markola]

I think it also has to do with the strong dollar, i.e. you are experiencing exchange rate risk.

 

[Gone4Good]

I know that past results are no guarantee of future returns and who knows what the future holds but is anyone seeing things differently?

Nope.

International has been a shitty asset class for several years running. Partly it's the strong dollar (up 30% against the Euro over 5 years, and even more against many EMs), partly it's weaker international economies, and partly it's a divergence of equity valuations with U.S. equities being much more richly valued.

This, by the way, is the cost of diversification.

But for value investors who expect to see market valuations converge over time and don't believe the U.S. dollar will outperform forever, international is a lot more attractive than domestic right now.

 

[Senator]

I think most any period you look at, US stocks out-perform international stocks.

International stocks are held for the same reason as bonds. They are held to moderate the lows when the US market is not as strong.

 

[athena53]

I just sold half my holdings in a fund that was doing really well years ago (CWGIX) but has been less impressive the last 5/10 years. It's averaging 5.23% over the last 10 years, which is better than the OP's 1% but I expect more over the long run on a volatile investment.


Because I'm simplifying, I looked for ETFs t possibly replace it, and there's almost no historic data. You'd think they could calculate it based on historic prices and returns of the underlying stocks even though the actual ETF didn't exist, but no... So, I just decided to keep my international exposure where it is. The dollar will eventually weaken again and that might bring the international sector up but if I'm late to the party, so be it. I've still got some on the table.

 

[mrfeh]

I know that past results are no guarantee of future returns and who knows what the future holds but is anyone seeing things differently?

Well, you just explained things right there - recency bias. Looking at an asset class over a five year period isn't informative.

Look at the 15 years prior to the last 5. Look at the current P/E ratios of US vs ex-US.

We don't care about what happened in the past; only the future. I have 33% of equities in ex-US, and I won't be making any changes. If I were, it would be to increase that percentage.

 

[Gone4Good]

We don't care about what happened in the past; only the future. I have 33% of equities in ex-US, and I won't be making any changes. If I were, it would be to increase that percentage.

+1

 

[catotx]

I remember having the opposite feeling around 2006 and 2007. See the Callan Periodic table to understand why:

https://www.bogleheads.org/w/images/d/dc/Callan_Periodic_Table_of_Investment_Returns.png

 

[Dash man]

So many companies have international footprints, it's impossible to know how much international exposure you have, even if you think you have all US stocks.


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[athena53]

So many companies have international footprints, it's impossible to know how much international exposure you have, even if you think you have all US stocks.

True- plenty of US-based CEOs have been blaming less-than-stellar results on the strong dollar. Still, you have far more direct exposure to exchange rate risk when you own stock with a value denominated in another currency.

 

[audreyh1]

Just looking at my International holdings and even though International only makes up 5% (Thank God) of my total equity holdings, I can't help but feel John Bogle was right. With many companies deriving significant revenue from international sales.....why own international companies? My reasoning was that since the headquarters of these companies were domiciled outside the USA, the only way to own them was to own an international fund/ETF.

But wow.......domestic funds have averaged 10-12% over the past 5 years....international a little over 1%. I realize that a big factor has been that emerging markets have gotten slaughtered along with ongoing problems in Europe and Japan along with currency risks but seriously.....1% average over the past 5 years

I know that past results are no guarantee of future returns and who knows what the future holds but is anyone seeing things differently?

Yes - I see things differently. International has outperformed in the past, and will again sometime in the future. I don't know when, so I just stay fully invested.

I believe diversification improves long term risk-adjusted performance, so I'm sticking with my allocation.

International can go through long periods of underperforming, but also long periods of outperforming, and you never know when. This table gives a good historical perspective on asset classes and relative performance.

And, actually, the international funds I added to after 2014 (pretty much MSCI EAFE class - I don't mess with emerging markets), because they were down, outperformed the rest of my portfolio in 2015.

 

[jazz4cash]

Just looking at my International holdings and even though International only makes up 5% (Thank God) of my total equity holdings, I can't help but feel John Bogle was right. With many companies deriving significant revenue from international sales.....why own international companies? My reasoning was that since the headquarters of these companies were domiciled outside the USA, the only way to own them was to own an international fund/ETF.

I feel your pain. I keep thinking of Bogle's comments whenever I look at the dismal performance of my 10% allocation to international funds. If I had a do-over, I would skip this sector but now that I'm in, I will maintain my holdings without buying or selling. I am confident it will benefit me in the long run. The Callan table assures me that broad diversification is better overall.

 

[steelyman]

International's been a drag for me, too. It'll show up when I report along with the others in the YTD investment performance thread (after quarter's end).

 

[Animorph]

I had a stretch of 5 years or so when the international fund was the best performer by far in my 401k. That's why you diversify. Five years is not an unusual period of time to outperform.

 

[Fedup]

I was 35% in international funds in 2015, sold at the peak, now I'm down to less than 5-10% now.


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[MasterBlaster]

If I were a betting man, I would bet that over the next 10 years international equities way outperform domestic equities.

international equities are in my portfolio, so in a way I am taking that bet.

Domestic equities by many measures look mighty pricey.

 

[redduck]

Gorgeous quilt, audreyh1, but maybe it should have been posted in the "What We're Making" thread.

 

[athena53]

Audreyh1, I LOVE that chart; I first saw one like that maybe 15 years ago. It's a spectacular example of how to make sense out of a ton of numbers with graphics. It's the main reason I never shift completely into or out of segments; you can't always predict the winners in any given year.

 

[Ed_The_Gypsy]

WDIV is about where it was 3 years ago but it is still pumping out 4.6% dividends.

John Templeton and John Greaney have both opined that there is no reason to invest outside the USA. Maybe they are right. Still, big US companies that do business outside the US often do not repatriate their dividends (Apple, etc.), while foreign companies are often required to distribute their earnings. One reason to stay away from large cap US companies. What good is their valuation if they ain't gonna pay you?

I am wondering what they are going to do with all the $$$ they have been accumulating, though. Buy a country? Some former Soviet satellites may be for sale. Think of all the politicians they could buy.

 

[dallas27]

Have been buying international like crazy last few years to keep allocations right. When it snaps back, it will be raining money.


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[dallas27]

Overall, I am 100% stock, 45% int.


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[Totoro]

Vanguard VT vs. VXUS explains alot.

P/E: 20.2 vs. 16.5
P/B: 2.5 vs. 1.5
ROE: 17.7% vs. 14.9%
Earnings growth: 8.4% vs. 9.9%
Dividend yield: 2.4% vs. 2.9% (excludes buybacks, more prevalent in US)

All these together seem to imply a relative valuation difference of at least 20%, as in VXUS has upside vs. VT (or conversely, VT has downside).

That is, if current trends continue (specifically earnings growth). That said, I'll keep on using VT as my main index tracker, which is about 55% US, 45% other currently.

I see no reason to allocate otherwise.

 

[Markola]

I can't buy fully the argument that "If you just buy the S&P 500, you will be internationally-diversified" because of the way that major corporations actively attempt to hedge away their international earnings' exchange rate risks on the currency markets. For example, see http://www.wsj.com/articles/SB10001424052970203731004576045680094212132

This practice of corporations monkeying with their international earnings seems akin to active portfolio management to me and so I believe I can only obtain true international exposure by owning an international stock index, in my case about 30% of my portfolio, currently.

 

[unclemick]

So the mad money I rescued from the remodeling spend it in retirement stash. I added some VT to my 'few good stocks' since football is months away.

Total mad money less than 5%.

heh heh heh - real money is full auto Target Retirement. Like a good investor if it keeps going down I shall keep silent.

 

[RobLJ]

Like the value and small-cap "premiums," international returns will underperform for long periods, then mean revert.
With US market fully or fairly valued (imo), I pretty much stick to about 35% international, including a small position in emerging markets. Given how they were smacked, I may put a little more to work in emerging, but I didn't think they'd come back as quickly as they have the last two months. I was surprised how quickly foreign bonds (dollar denominated) have recovered.


International has outperformed in the past, and will again sometime in the future. I don't know when, so I just stay fully invested.

I believe diversification improves long term risk-adjusted performance, so I'm sticking with my allocation.