Skip to main content

Sound Advice: July 6, 2022

Should international markets be of interest?

Although the U.S. stock market always seems to be on center stage, investing in international markets has continued to grow, especially since the arrival of exchange-traded funds (ETFs), which greatly simplify the process.  It’s no longer a matter of trying to ferret out the details of important companies and untangling the differentials in local currencies.

The simplest of all ways to invest abroad is to buy broad-based, exchange-traded funds that track the performance of specific countries or regions.  The broadest coverage of all would be IXUS, the iShares Core MSCI Total International Stock ETF.  Similar funds are available from Vanguard, Fidelity, and others.

A narrower focus is available through EFA, iShares MSCI EAFE ETF.  EAFE stands for Europe, Australasia, and Far East.  Then there’s EEM, which is an ETF for emerging markets, IEV for Europe, EWJ for Japan, and FXI for China.  There are numerous others, but the essential ingredient in all cases is a substantial level of trading to ensure that there’s a ready market for buyers and sellers.

Over time, these ETFs have typically had valuations 20% or more below those of the U.S.  There have been extended periods when they substantially outperformed domestic stocks and others when they lagged far behind.  In the half decade prior to 2022, when the U.S. market soared, foreign markets were far behind.

So far this year, however, the picture has brightened for investing abroad, but the undervaluation persists.  Even so, an interesting differential has developed.  With one exception, the international ETFs noted above turned in similar returns.  The exception was the pattern of FXI, the ETF for China, which perhaps due to the country’s strict lockdown approach to the pandemic experienced a far steeper market downturn until early spring this year.

Then things changed, China’s economy started to perk up and so did FXI.  Unlike the other international ETFs and the Standard & Poor’s 500 Index, all of which are still far down in the teens for the year to date, FXI has climbed from a shortfall of more than 20% in early May to a deficit of only 5% in current trading.

Given what may be viewed as the more limited transparency of international companies and contrasts with non-U.S. accounting methods, the leaner valuations abroad are understandable.  Still, there are more than a few parts of the world where the future growth rates will exceed those of mature economies.  More rapid growth often goes hand in hand with stronger market returns. 

N. Russell Wayne, CFP®

Sound Asset Management Inc.

Weston, CT  06883

 203-222-9370

 www.soundasset.com

www.soundasset.blogspot.com

Any questions?  Please contact me at nrwayne@soundasset.com

Comments

Post a Comment

Popular posts from this blog

Sound Advice: July 8, 2020

Jobs Are Up, But So Are New Infections Through the spring months, m ost of the economic data was extremely negative, with record declines in employment and consumer spending.  The speed of that decline had no modern precedent. We are now in a recession.   The shortest recession on record occurred in 1980 and lasted just six months.  Second place goes to a seven-month recession in 1918-19, which was tied to the Spanish flu pandemic.  The big question is: When will this recession end? Given surprisingly strong data in May, April may have been the bottom of this economic cycle.  If so, it will have been the shortest recession on record.  With massive support from the Federal Reserve, the federal government, and the reopening of previously closed businesses, employment surged unexpectedly.  At the same time, pent-up demand, stimulus checks, and generous unemployment benefits led to a reacceleration of commercial activity. Still, not all is rosy.   In his recent testimo
Post a Comment
Read more

Sound Advice: December 13, 2023

What You Need To Know About Long-Term Care Insurance Long-term care insurance (LTCI) is a type of insurance that helps cover the costs of long-term care services, such as assistance with activities of daily living (ADLs) such as bathing, dressing, and eating. It can also cover the expenses associated with care in a nursing home, assisted living facility or at home by a professional caregiver. Here's what you need to know about long-term care insurance: 1. Not Covered by Health Insurance or Medicare: Long-term care services are generally not covered by health insurance or Medicare, which only provide limited coverage for skilled nursing care and rehabilitative services. Medicaid covers long-term care, but you need to meet strict income and asset requirements. 2. Costs of Long-Term Care: Long-term care can be expensive and can quickly deplete your savings. LTCI helps to cover these costs, providing financial security and ens
Post a Comment
Read more

Sound Advice: December 6, 2023

Some Suggested Financial Adjustments for Retirees Financial adjustments for retirees are crucial to ensure a comfortable and secure retirement. Here are some worthwhile financial adjustments and considerations for retirees: 1.      Create a Budget: Establish a realistic budget based on your retirement income and expenses. Categorize your spending and prioritize essential expenses such as housing, healthcare, and groceries. 2.      Emergency Fund: Maintain an emergency fund to cover unexpected expenses. Aim for at least three to six months' worth of living expenses. 3.      Healthcare Costs: Be sure to fully understand your healthcare coverage and consider supplemental insurance plans to cover gaps in Medicare. Account for potential long-term care expenses as well. 4.      Minimize Debt: Aim to pay off high-interest debt before retiring. This can significantly reduce financial stress and free up more of your retirement income. 5.      Investment Diversification: Div
Post a Comment
Read more