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The Global Portfolio's rough three decades

I was working on increasing foreign exposure in my portfolio after the last few years run up in the US market. Using Portfolio Visualizer, increasing international exposure lowered CAGR, Sortino, and Sharpe numbers. Since PV is backward looking data that made sense to me as US has been much stronger than Foreign. I then started using earlier start dates to minimize the recent results but I ran into same numbers being lower the more foreign exposure I increased. This writer finds similar results.
(dated Mar 2019)

He's not saying not to invest outside the US but he writes:

"It seems that no matter how one looks at the data, the last few decades have not been friendly to the global equity portfolio when viewed through the lens of an American equity investor. However, I do not want readers to come away thinking that I am opposed to investing abroad. Far from it! As I have argued previously, there is no compelling reason to own everything in the foreign equity universe. Similarly, foreign equity portfolios with factor tilts such as momentum and minimum volatility offer value to investors. In addition, investors may find better value in foreign small caps as I have discussed here and here. So, by all means, diversify your portfolio not just sufficiently, but also prudently".

He had also written previously that US Tech and Health Care sectors may also have been a major reason for US out performance as well.


  • edited January 11
    I am in general agreement with all of that. I also think that going forward the best opportunities outside the US probably lie in Britain or the emerging markets, small caps and tech.
  • You know, just as an example, for the past few years everyone has been saying "go short term" for bonds, but the "long term" bonds have done better. Theory and Practice are two different things.

    I often wonder if "you will do better in emerging markets" is more a low-risk prediction game given recent history rather than any fundamental intellect from those who keep saying it.

    Specifically, everyone has been beating the drum on "emerging value". If you look at PRMSX to PRIJX comparison, has not quite played out that way. I have basically given up on trying to grow a brain realizing that's what most people who put ideas in print are doing.
  • edited January 11
    Linked chart might shed some light. Compares returns (both stocks and bonds) among different countries since 1900 (but ends with 2014). Clearly, U.S. stands out as leader when it comes to equities.

    Some things to keep in mind:

    - U.S. benefitted over the century from many unique cultural, societal and political advantages (including a strong regulatory, legal, judiciary framework and strong educational stystem).

    - It costs more to invest abroad for a variety of reasons - some related to the above.

    - The chart may not reflect the impact of currency fluctuation. I’ll take a 0% market return over a 10% market return if the currency of the former appreciated 20% while that of the latter declined.

    - The world has changed dramatically over the past century. Namely, industrialization and technological innovation are far more widespread across the globe today than just 50 years ago.

    - Assuming outperformance by the U.S. continues for decades more (a big assumption) an investor might still want to dampen year-to-year volatility by spreading out across the globe.
  • Happy with PRGSX for global exposure. If you have acess to DFA funds DFUKX has small cap exposure in UK (Britain).
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