International has been a real disappointment

[redduck]

...John Templeton and John Greaney have both opined that there is no reason to invest outside the USA. Maybe they are right.

I thought that the late Templeton was a pioneer in international investing, and he founded several globally diversified MFs.

I think Ed may be thinking of a different John Templeton (e.g. Jack Bogle?).

 

[gcgang]

I don't believe John Templeton ever said that. He would've said, why would you confine yourself to one market when you can buy similar companies much cheaper in another country. It's just common sense.

 

[Animorph]

Vanguard's Gold-Rated LifeStrategy Funds Get More Global

"Over the course of 2015, Vanguard increased its international exposure across the series. Non-US exposure now makes up 40% of the equity sleeve and 30% of the fixed-income sleeve in each of the funds. The allocation brings the funds closer to a neutral global market cap, but it means the funds will underperform their more U.S.-focused peers when international markets are out of favor. Still, the series has outperformed peers on a total and risk-adjusted return basis since inception. And the increase to international exposure should provide diversification benefits over the long run. With expense ratios ranging from 12 to 15 basis points, these funds are standout offerings, earning the series a Morningstar Analyst Rating of Gold."

 

[Lsbcal]

Vanguard's Gold-Rated LifeStrategy Funds Get More Global

"Over the course of 2015, Vanguard increased its international exposure across the series. Non-US exposure now makes up 40% of the equity sleeve and 30% of the fixed-income sleeve in each of the funds. The allocation brings the funds closer to a neutral global market cap, but it means the funds will underperform their more U.S.-focused peers when international markets are out of favor. Still, the series has outperformed peers on a total and risk-adjusted return basis since inception. And the increase to international exposure should provide diversification benefits over the long run. With expense ratios ranging from 12 to 15 basis points, these funds are standout offerings, earning the series a Morningstar Analyst Rating of Gold."

I sometimes wonder how a big institution like VG makes these changes. Some observations from the past on their balanced all in one offerings:
1) VG used to be way low in international exposure recommendation. Something like 20% or under.
2) VG used to be all US bonds, now international bonds have crept in there.
3) VG used to have no TIPS, now there are TIPS. They missed the much better period for TIPS in the early 2000's.

 

[Gone4Good]

I sometimes wonder how a big institution like VG makes these changes. Some observations from the past on their balanced all in one offerings:
1) VG used to be way low in international exposure recommendation. Something like 20% or under.
2) VG used to be all US bonds, now international bonds have crept in there.
3) VG used to have no TIPS, now there are TIPS. They missed the much better period for TIPS in the early 2000's.

Some of this undoubtedly has to do with improvements in market liquidity around the world. Some of it probably has to do with pure market competition (if other firms have international funds, you have to as well). Some of it probably has to do with the waning influence of Bogle who didn't care for international. And also the growing realization that the U.S. isn't "the market." So if one wants to own the basket of assets known as "the market" you have to hold a much larger share of international assets than ever before.

And TIPS are relatively new securities. So it's not surprising that TIPs funds haven't been around forever.

 

[Lsbcal]

It just seems like Vanguard is kind of slow to move on some things like foreign and TIPS. Way back in the 1990's I recall there was research showing the 30% to 40% foreign was the sweet spot.

I'm not on board with the international bonds though. To me, bonds are for safety and the US is seen by market participants as the place to be in crisis. But now I just looked it up and the VG intermediate investment grade fund I have (VFIDX) has 17% international. Yikes. Well if equities start to show cracks, I move to the Intermediate Treasury fund so perhaps I'm OK with the foreign allocation.

 

[Markola]

We are long time fans of the LifeStrategy Funds and they are our core holding. I don't think they have TIPS, though some of the Target Date funds do.

 

[Totoro]

To me, bonds are for safety and the US is seen by market participants as the place to be in crisis. But now I just looked it up and the VG intermediate investment grade fund I have (VFIDX) has 17% international. Yikes. Well if equities start to show cracks, I move to the Intermediate Treasury fund so perhaps I'm OK with the foreign allocation.

Depends on which international countries are in the fund? Germany, Finland, Switzerland, Netherlands are all also considered 'safe haven' countries.

 

[MichaelB]

I sometimes wonder how a big institution like VG makes these changes. Some observations from the past on their balanced all in one offerings:
1) VG used to be way low in international exposure recommendation. Something like 20% or under.
2) VG used to be all US bonds, now international bonds have crept in there.
3) VG used to have no TIPS, now there are TIPS. They missed the much better period for TIPS in the early 2000's.

William Sharpe (Nobel Prize) wrote a paper a few years ago arguing that the lowest risk allocation was to have equities and fixed income in the same proportions as currently existed in the world. Vanguard has always been US centric, so this may be their embracing the Sharpe risk model and slowly reallocating so their portfolios match the global allocations.

 

[Lsbcal]

Depends on which international countries are in the fund? Germany, Finland, Switzerland, Netherlands are all also considered 'safe haven' countries.

Here is what M* shows for the Intermediate Investment Grade fund:

I can live with this, but didn't realize this until looking it up for this thread. Adds a little spice to the mix. Total Bond Market (VBMFX) has 9% international bonds.

 

[Ed_The_Gypsy]

I think Ed may be thinking of a different John Templeton (e.g. Jack Bogle?).

Sorry. Jack Bogle. Templeton did make a lot of money in international real estate. My bad.

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[Running_Man]

Multiple choice test here, pick one :
1) There is a clear trend line down if we do a linear regression fit.
2) The US dollar is just a bit under where it was in the 1970's. Just returning to it's natural place in the universe of currencies.
3) This past data in this chart doesn't tell us where we are going in the future.
4) None of the above.

Regarding international, FWIW I tend to go with a momentum approach so have some in small cap international and none in international large cap.

The dollar is where it was in the 70’s, in the 80’s, in the 90’s in the 2000’s and now in the 2010’s, the entirety of the argument that it is in a major downtrend is dependent of the period when US bonds averaged a real 5-7 percent return in the 1980’s due to Paul Volker, if you take that away the dollar has averaged +- 20% range over 30+ years. Over the entire 45 years shown the dollar index shows a decline of 8.2% or about 0.18% decline annually, about as much as a Vanguard index fund expense ratio.

 

[target2019]

Adding link to Asset Returns chart referred to by Midpack in another thread.

https://novelinvestor.com/asset-class-returns/

The chart adds REIT to the asset classes. Interesting that REIT or EM rank #1 in 12 of past 15 years.

 

[Gone4Good]

The dollar is where it was in the 70’s, in the 80’s, in the 90’s in the 2000’s and now in the 2010’s, the entirety of the argument that it is in a major downtrend is dependent of the period when US bonds averaged a real 5-7 percent return in the 1980’s due to Paul Volker, if you take that away the dollar has averaged +- 20% range over 30+ years. Over the entire 45 years shown the dollar index shows a decline of 8.2% or about 0.18% decline annually, about as much as a Vanguard index fund expense ratio.

Nope.

Starting from the end of the post-Volker decline in 1987, the USD still has a downward trend. I can't figure out how to put a trend line in FRED data (so see image attached for that):

As far as the impact on returns. the way to measure trends in cyclical data is by measuring from peak to peak or trough to trough. To exclude the Volker Peak we'll measure trough to trough. Starting with the 1978 trough of 90 and going to the 2011 trough of 68 gives us a negative average annualized return of 0.85%.

The slope of the trend line in the attached chart from 1987 works out to be 0.7% per year - so in the same ballpark

 

[Gone4Good]

For what it's worth (which is probably nothing) the last two big USD rallies lasted for five years and seven years respectively. The current rally is now in it's 5th year.

 

[MichaelB]

Trying to predict where currencies are headed is a surefire way to lose money. That said, it appears the Fed may have softened it's stance on interest rates over the past week, easing up on the "raise rates or bust" view that has prevailed for the past couple of years. That could signal the US$ has hit it's peak.

Either way, I increased my equity allocation earlier in the year, all international developed and EM, and am now up to 52% equities, of which 55% is non-US. But, then again, I've always been a glutton for punishment.

 

[target2019]

One pillar we have is 401K - 50% US small/mid, 35% Int'l, 15% stable value.
The pillar has sunk a bit since 2014...

 

[Gone4Good]

I feel comfortable saying that in 10 years the S&P will be above it's current value of about 2065. Don't need to predict the market to make that statement.

I also feel comfortable saying that in 10 years the USD index will be below today's value of 90.

I have absolutely no idea the path either will take in between or what the ultimate highs or lows will be. All I know is that both trends are fairly highly probable.

 

[Bestwifeever]

We have held ex-US equities and bonds only to the extent that they are held in VG's Wellesley, Wellington, and total bond market. That's our AA and I'm sticking to it.

 

[Running_Man]

Nope.

Starting from the end of the post-Volker decline in 1987, the USD still has a downward trend. I can't figure out how to put a trend line in FRED data (so see image attached for that):

As far as the impact on returns. the way to measure trends in cyclical data is by measuring from peak to peak or trough to trough. To exclude the Volker Peak we'll measure trough to trough. Starting with the 1978 trough of 90 and going to the 2011 trough of 68 gives us a negative average annualized return of 0.85%.

The slope of the trend line in the attached chart from 1987 works out to be 0.7% per year - so in the same ballpark

If you use your slope line we have been over the trend for only 7 years and 17 years under the trend? To be on equal time basis Isn’t that the only thing that matters for a currency time it spends at a level not the absolute high point for shorter periods? On a time basis it is a nearly straight line through 89 with fluctuations +- 20%

 

[eta2020]

This negative thinking about international markets implies to me you are better to be in VXUS then in VTI.

Having said that I will continue my ratio of US/International.

 

[Fedup]

After reading this, I think my funny money, borrowing from another thread is going to EM.


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[petershk]

I gave up guessing. My entire equity portfolio is in VT.

Hehehe... I'm getting closer and closer to this as I go.

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[eta2020]

Hehehe... I'm getting closer and closer to this as I go.

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Why pay 0.14% fees in VT if you can split money 50/50 between VTI and VXUS and pay 0.05% and 0.13% averaging 0.09% in fees.

 

[Totoro]

My equity is split in two: Trackers & individual (experiment). Trackers are 65% VT, 25% VOE.

In 8 years or so I'll reassess. If VOE doesn't outperform substantially I'll move that to VT as well. Same for individual.

Portfolio of DM is 30% equities, all in VT.