Global Valuations

kevindow

Here are two sites that I follow for global valuations:

Global Stock Market Valuations and Expected Future Returns

Global Stock Market Valuation Ratios

The following article demonstrates how CAPE and P/B reliably predict future market returns and market drawdowns in both domestic and foreign equity markets:

Predicting Stock Market Returns Using The Shiller Cape

Excellent excerpt from this last article:

"Existing research indicates that the cyclically adjusted Shiller CAPE has predicted long-term returns in the S&P 500 since 1881 fairly reliable for periods of more than 10 years. Furthermore, the results of this paper indicate that this was also the case for 16 other international equity markets in the period from 1979 to 2015, and in addition to this, CAPE also enabled equity market risks to be gauged. In this manner, low market valuations were not only followed by above average market returns but also lower drawdowns. On the contrary, high market valuations led to lower returns and faced higher market risks."

As far as investing, what does all this mean to me. Since CAPE matters globally, I am inclined to consider the ETF CAPE (however, average daily trading volume is too low for me), the ETF GVAL, and the mutual funds DSEEX/DSENX and DSEUX/DLEUX.

In our portfolio, I am confident in using CAPE and P/B for investment selection, and have an 18% position in DSEEX and a 10% position in PXH.

Kevin

Sven

The country allocation of GVAL is bit too risky for my taste:

Russia 11.2%
Austria 10.9%
Brazil 10.2%
Portugal 9.7%
Spain 8.9%
Hungary 7.9%
Greece 7.8%
Poland 7.7%
Czech Republic 7.1%
Norway 6.5%
Hong Kong 6.2%
Italy 5.8%

I will stay with SFGIX for the emerging market. Also I established a position with DSEEX last fall - so far it has done well.

MikeM

DSEUX is an interesting fund ONLY because of the success of DSENX. In my opinion, there is absolutely no reason to jump into this fund now. Way way way to early. If it is doing better than FMIJX after 3 years I may consider it.

hank

@Sven: Actually, Russia (at 11.2%) is about to become our best buddy. We'll surely have much in common. What's not to like?

davidrmoran

@kevindow

Wow, thanks so much for finding this 3-week-old fund. Where and how did you do that? I have had a difficult time doing so, for over a month. I had a long interesting chat a couple weeks ago w/ Fidelity brokerage and fund experts who even had trouble finding the CAPE EU version, and kept coming up with the European version of US CAPE instead.

Fido data for the funds are still not loaded --- searching lists nominal result at first, but then goes to 0 results. I am IMing w someone as we speak.

I am interested in jumping in now. A little. With DT increasingly making out with the Euro right, and also Brexit, what could go wrong ?

kevindow

@Sven, I agree that SFGIX/SIGIX is a safer EM play than GVAL. Also, GVAL has inadequate average daily trading volume for our portfolio. We continue to own a small position in SIGIX.

@MikeM, I agree that FMIJX is the best LC Foreign fund out there at this time. At this time, DSEUX is worth watching but not buying.

@hank, Donald to Vladimir: "Большое спасибо !! "

@davidrmoran, Like you, I am intrigued by the CAPE methodology and I am convinced that it is the real deal in terms of beating the markets. I just kept searching CAPE and came up with the DL fund. Personally, I will wait for a track record to develop, and if it performs, then I will buy. FMIJX is really the fund to beat in the LC Foreign space.

Kevin

davidrmoran

@kevindow,
Thanks much. I chose (long ago) SGOIX over it, but agree it has been on a real tear.
I recently ditched OAKIX for Herro's idiot comments on global warming, and, since SGOIX is closed even to current investors, went w/ FOSFX. Shoulda switched to FMI instead.
I do not feel a need for a track record to develop w/ DSEUX, but for the last half-decade I have in any case kept at the front of my mind John Waggoner's pointing out that today no one really needs any foreign funds.

http://usatoday30.usatoday.com/money/perfi/funds/story/2012-07-04/second-quarter-mutual-funds-international/56008492/1

I just asked him if he still held this view and he said Pretty much.

kevindow

@davidrmoran,

Thanks for the Waggoner article. Here is an article in support of buying foreign equities:

The Case for Buying Foreign Stocks Now

Right now, I have the greatest confidence in the US economy, so most of our portfolio is positioned there. Our only foreign exposure comes from our EM funds: PXH, WESNX and SIGIX.

Kevin

davidrmoran

Wow, that's a bunch of weak arguments. Did you see my Goldman posts?
Anyway, g/l, hope it goes as he thinks it should, logically.

VintageFreak

Hmmm....I was actually looking to invest in the International CAPE. Can anyone tell me if this is "me too" research or has Shiller been tracking it for as long as the domestic version?

MikeM

DSEUX: I guess I'm not sure how it would work compared to domestic DSENX. DSENX buys undervalued sectors from the S&P 500. Pretty clear and straight forward. CAPE picks from a somewhat stable group of U.S. stocks. Companies in a sector somewhat move in tandem. What index or group of countries will this fund use when buying? If the consumer sector is where value lies, is it the same value in the UK as it is in Greece? There are just so many other variables when buying global, country and regional variables that can drive sectors differently in different countries. That is pretty much why managed international or EM funds typically do better than index.

It may be clear to others, but to me it is not straight forward how International CAPE will work and that it will have category beating returns like domestic CAPE. And because it is basically a semi-quant fund, there is no reason to get in early IM<HO. The "manager" has no more flexibility with a small asset base than a large one. But, to each his own.

kevindow

http://shiller.barclays.com/instruments.app?statusId=4,5&themeId=41#/details/306151

AndyJ

On the topic, I'd recommend the Hyman-McLennan interview about international markets/economies that's current on WealthTrack.

Mc made the point that foreign equities (he was mainly talking developed, as I understood it) look cheaper than the U.S., but that the valuation differential is almost entirely in the financial sector. Both still think the U.S. is the best value, for now. When asked the "one investment" question about foreign markets, both brought up Japan. (Hyman's recommendation came with currency hedging).

Crash

MikeM said:

DSEUX is an interesting fund ONLY because of the success of DSENX. In my opinion, there is absolutely no reason to jump into this fund now. Way way way to early. If it is doing better than FMIJX after 3 years I may consider it.

.....What leaps to mind here is Adam Parker of Morgan Stanley a few weeks ago, on Bloomberg, where he declared: "Europe is for vacation, not for owning stocks." I did not do very well holding PRESX, looking back a couple of years.

davidrmoran

http://www.iijournals.com/doi/abs/10.3905/jpm.2014.41.1.016

Crash

pay-wall.

kevindow

@davidrmoran, Thanks for this fantastic article:

"Es-cape-ing from Overvalued Sectors: Sector
Selection Based on the Cyclically Adjusted
Price-Earnings (CAPE) Ratio"

Kevin

Crash

Thanks.