Opinion on International or Global Funds

[Closet_Gamer]

Like others I’ve been irritated by intl underperformance for years and years.

I continue to hold it both because pros say one should for diversification and because it is a built in currency hedge. If the dollar gets spanked those funds should appreciate significantly.

I keep much of my intl holdings in a dividend centric intl ETF. This at least puts some dividends into the mix and I still get my currency hedge.

 

[Gumby]

I have been slowly dollar cost averaging into Matthews India Fund based on the idea that India is one of the few countries producing young people.

The total fertility rate in India is now less than 2.1 (the necessary replacement rate to prevent population decrease) and is shrinking every year.

Budget 2025: Total Fertility Rate is slow-moving but an important long-term consideration

Union Budget: India's population has surpassed China's, with a significant working-age demographic. However, a declining Total Fertility Rate (TFR) poses future economic and political challenges, especially for southern states. Efforts are needed to enhance human capital and monitor TFR trends...

economictimes.indiatimes.com

 

[joesxm3]

I had a quick talk with Grok who says that Afganistan 4.3 Pakistan 3.5 and Israel 3.0 are higher than India. USA, Germany and China are less than 2.0.

Anyone know a good fund that invests in Afganistan?

But, seriously, thanks for the reality check.

 

[street]

Some great advice. I will do some rethinking on what I need to do. where I have a global and international is in taxable account that I want to switch up funds.
So, if I move that money from those two accounts I would be looking at more tax to pay. I just want to move to other account nit cash in on them.

 

[Stormy Kromer]

International funds have tanked any diversified US fund for over 20 years, with less volatility.

I have way too much in Int'l funds, about 20%.

It reminds me of a major league all star game when you have a bench full of .350 hitters and the manager puts a guy in the line up who is batting .200 for the last 10 years because "he's due"

Give me the .350 hitter any day. Good bye International....

 

[Koolau]

International (Non-US) versus US Equities (The "Arguments") - Bogleheads.org

Choose a percentage for ex-US and then stick with it.

Kinda where I'm at. If "diversity" means anything, then some exposure ex-US still makes sense though it can be a drag heh, heh, until it isn't. If I change my mind on that it likely will not be based only on drag. To maximize the chance of the greatest potential returns, we'd all probably eschew bonds, CDs and other cash type instruments. I'm willing to "pay" for some diversity but YMMV. I do keep the amount relatively small. On the order of my PMs which can also be a drag - until they aren't.

 

[swakyaby]

I’ve held Fidelity Diversified International for decades, and it has been an underperformer. It’s my only international holding.

 

[pjigar]

I have been slowly dollar cost averaging into Matthews India Fund based on the idea that India is one of the few countries producing young people.

I used to think that back 20 years ago! And I did put my money (50% of my portfolio then) where my mouth was. It didn't turn out so well for 5 years I was in India market. I got out of India market because of other reasons (Bought real estate). I recently calculated 20 year CAGR of Indian market (because I was curious and I keep hearing India is growing faster). The results were (drum roll): Indian market (NIFTY50) beat US market by 1.2% BEFORE fees (11.9% India vs 10.7% S&P500). So even a passive India fund would barely beat US market after fees. MINDX did even worst, mostly likely because it is active (fees, churn, etc.) and it is a US-based fund (worst tax treatment). I am still not convinced that any market can beat US over a long term (See my reasoning in my earlier post). To repeat a saying in my native language: A camel stays taller than a goat even when he is sitting.

PS: The RE I bought from selling Indian funds have generated 19% CAGR! But then gain, I just got lucky.

 

[MichaelB]

I would be so happy to see it go! The foreign tax credit increases your taxable income to ~match. For example for 2024 I had something like $1225 foreign tax credit, but $1230 in additional income due to the foreign tax paid by the funds. I didn’t receive that $1230, but I am still taxed on it and it still adds to my AGI. Also impossible to know or predict until after year end, so it interferes with accurate tax/AGI planning.

The whole thing is a royal pain in the butt. Not only the Form 1116, but also dealing with carryovers some years.

In other words, there is no benefit to receiving a foreign tax credit in this case of passive international income. Just a lot of extra paperwork, and a higher AGI so having to leave space when trying to stay below a certain IRMAA threshold and hoping you guessed well.

I’ll not disagree that foreign taxes are messy. It’s one aspect that keeps me tied to TurboTax, which has better support for form 1116. (Better, but still mediocre). That the credit also adds to the AGI pushed me over a tier level for IRMAA a few years ago, so I understand and sympathize with that view. I recall RunningBum had the same issue,

Nonetheless, I’d rather have foreign taxes add to my AGI and then credit the entire amount against my total taxes than have the foreign taxes in an IRA.

 

[MichaelB]

The total fertility rate in India is now less than 2.1 (the necessary replacement rate to prevent population decrease) and is shrinking every year.

Budget 2025: Total Fertility Rate is slow-moving but an important long-term consideration

Union Budget: India's population has surpassed China's, with a significant working-age demographic. However, a declining Total Fertility Rate (TFR) poses future economic and political challenges, especially for southern states. Efforts are needed to enhance human capital and monitor TFR trends...

economictimes.indiatimes.com

The fertility rate is declining in India but because the population is so young the total population will continue to grow for the next 2-3 decades and the labor force may double over the next decade. Its possible that India can become the main driver of global economic demand.

Edit to add: there is a strong positive correlation bewteen growth of the labor force and growth of equity markets.

 

[Romer]

This has been an enlightening thread. I was debating on going the boggle method of 3 funds with one being international. I have not fully decided on that path, so the timing here is good.

Thanks @street for starting this thread

 

[wolf]

International funds have underperformed my US stock exposure by a significant amount. I bought them for diversification but would have been much, much better off buying a diversified fund such as VG Total Stock Index.

Agree 100%. Noticed this phenomenon when I was younger. Sounds logical. Diversification, purchase international funds. But in reality. One is much better off purchasing a US Total stock fund.

Sidenote. Most large US stocks do plenty of international business. So indirectly you have foreign exposure with the stability of USA.

 

[audreyh1]

I’ll not disagree that foreign taxes are messy. It’s one aspect that keeps me tied to TurboTax, which has better support for form 1116. (Better, but still mediocre). That the credit also adds to the AGI pushed me over a tier level for IRMAA a few years ago, so I understand and sympathize with that view. I recall RunningBum had the same issue,

Nonetheless, I’d rather have foreign taxes add to my AGI and then credit the entire amount against my total taxes than have the foreign taxes in an IRA.

In the IRA you don’t receive that phantom income, so you don’t get the tax credit. It’s essentially a wash. You aren’t hurt by holding an international fund in your IRA and it’s much simpler tax wise.

The tax credit is basically there to offset the phantom taxable income from a fund paying foreign taxes. For taxable accounts it’s also a wash, yet unfortunately increases AGI and increases tax complexity.

 

[audreyh1]

This has been an enlightening thread. I was debating on going the boggle method of 3 funds with one being international. I have not fully decided on that path, so the timing here is good.

Thanks @street for starting this thread

Agree 100%. Noticed this phenomenon when I was younger. Sounds logical. Diversification, purchase international funds. But in reality. One is much better off purchasing a US Total stock fund.

Sidenote. Most large US stocks do plenty of international business. So indirectly you have foreign exposure with the stability of USA.

John Bogle was was quite vocal about not using an international fund for the very reason that he thought plenty of Total Stock Market companies gave you international exposure.

 

[MichaelB]

In the IRA you don’t receive that phantom income, so you don’t get the tax credit. It’s essentially a wash. You aren’t hurt by holding an international fund in your IRA and it’s much simpler tax wise.

The tax credit is basically there to offset the phantom taxable income from a fund paying foreign taxes. For taxable accounts it’s also a wash, yet unfortunately increases AGI and increases tax complexity.

The tax credit is a wash if the marginal tax rate is 100%. If the marginal tax rate is less than 100% you are better off with the increased income and tax credit.

Another complication is the credit can’t always be completely used in the same tax year it is paid. Unused credits can be accrued and used in future years, but that just increases the complexity and hassle.

No disagreement that international funds with foreign taxes are a pain in the rear end.

 

[audreyh1]

Thats true that the tax credit is a credit against taxes rather than a deduction.

I’m more focused on AGI and IRMAA limits than taxes owed these days so I forgot.

But still too messy for us, although we’re stuck with it for a long while I expect.

 

[Chuckanut]

Fun fact - When I bought my first international fund several decades ago Europe and the USA had about the same GNP on a per-capita basis. Today, a recent article has claimed that the US per-capital GNP is 20% higher than Europe. This may be one reason why International funds have not done so well.

 

[Montecfo]

Thats true that the tax credit is a credit against taxes rather than a deduction.

But still too messy for us, although we’re stuck with it for a long while I expect.

But you can also choose to deduct foreign taxes paid but it is scheduled A so maybe that does not help most people.

 

[Montecfo]

I do not have any international funds. But looking to add India.

I do have exposure to international stocks and I like that giving me geographic diversity and exposure to faster growing or at least different markets.

I don't mass buy or mass sell them, it is company by company.

 

[SlinkyPete]

This has been an enlightening thread. I was debating on going the boggle method of 3 funds with one being international. I have not fully decided on that path, so the timing here is good.

Thanks @street for starting this thread

The Jack Bogle recommendation was that ex US is not necessary. Somehow the BogleHEADS have morphed that into keeping global cap weight in ex US stocks, which is about 40%.
Bogle's recommendation has been right for the last 15 or so years, as ex US (VXUS at Vanguard) has returned very little beyond dividends since its inception. The 3 Fund Portfolio, imo, has been a smelly dog for years but the geniuses over at Bogleheads won't admit it.

 

[ut2sua]

I’m heartily sick of the tax hassle of owning them.

I have some taxable VXUS shares in Fido. Between Fido year end reporting and TurboTax, I don't recall suffering too much doing the taxes. May be folks were owning individual company shares(?)
As mentioned by many, Internationals have underperformed for years. Actually since I don't have much international exposures, I was considering adding a bit more given that S&P500 is high, but it has been difficult to pull that trigger due to various concern that I have had (rightly or wrongly so) regarding international equity.

 

[ut2sua]

Somehow the BogleHEADS have morphed that into keeping global cap weight in ex US stocks, which is about 40%.

This is because there was historical data showing that having xx% of international equities did better for a portfolio during historical crashes. No one knows whether or not that learning will apply in future market.

 

[audreyh1]

I have some taxable VXUS shares in Fido. Between Fido year end reporting and TurboTax, I don't recall suffering too much doing the taxes. May be folks were owning individual company shares(?)
As mentioned by many, Internationals have underperformed for years. Actually since I don't have much international exposures, I was considering adding a bit more given that S&P500 is high, but it has been difficult to pull that trigger due to various concern that I have had (rightly or wrongly so) regarding international equity.

Funds here. I became far more sensitive to this once I needed to manage my MAGI for IRMAA purposes. But still it’s a pain to deal with the Form 1116. And it may be that as long as your foreign tax credit is below some number taxes are simplified. But we have exceeded $1000 for many years,

 

[Montecfo]

You know the comments about Bogleheads are interesting. Exiting international because it has "underperformed" sounds a lot like market timing.

Load up on last year's winners?

 

[EastWest Gal]

You know the comments about Bogleheads are interesting. Exiting international because it has "underperformed" sounds a lot like market timing.

Load up on last year's winners?

Exiting after 20 years of underperforming is probably not market timing. I hold about 5-7% international and this has been an interesting thread. I too have seen the underperformance. But I've only been without a financial advisor for two months so have not acted on it. Since we are living on our taxable portfolio, slowly dumping the international equities in exchange for food, gas, utilities, and travel might be a good idea.