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For the 35-year history ended December 2024, they found that US equities outperformed non-US developed markets by 4.7% per year, with 3.8% attributed to relative valuation expansion, 1.1% to real EPS growth, negative 0.6% to dividend yield differential, and negative 0.3% to real interest rate differential.
They found that to justify current valuations, US equities would need 2.2% higher annual real earnings growth than non-US peers over the next decade—well above the historical 0.3% edge.
Well, what's it all about? I suppose it depends on your feelings about recency bias vs. mean reversion. After all, US indexes are setting records ain't they?From the end of 2008 through 2024, the US dollar rose in value relative to the euro from 0.72 to 0.92, an increase of almost 29%.
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From James Stack (July 18): Current Market Price-to-Earnings 28.3 / Average since 1928 17.7
I’ve checked with M* and found that the P/E for the equity holdings of OAKBX which I recently bought at 13, with the average P/E for this class of funds at 20. (Fund has over 40% in fixed income.)
For reference, LCORX (which I don’t own) comes in at a P/E of 16 according to M*, again with its peer group at 20.
I realize P/E can be measured in different ways and that there are several other measures of market valuation besides P/E. Stack notes several other valuation metrics, all indicating an expensive market.
Bottom line: Are there some funds that might hold up well during a market rout, even considering the apparent “bubble” more generally speaking? ISTM after the March 2000 “Tech Wreck” many other markets recovered in a year or two’s time compared to the NASDAQ which remained below its 2000 high for 15 years.
Re “ I wonder if …” Well, if the U.S. extremes (high valuations) are as bad as some speculate then it would seem like there are better values abroad. I’m not sold on that. Have actually reduced foreign exposure (Europe) over past several months.
This link below to a Meb Faber show might work. Whitney Baker worked alongside Treasury Secretary Scott Bessent until he left to join the Administration. I haven’t heard too many pundits more bearish than Baker. Whether you agree or not, she does present some interesting analysis. I haven’t changed anything in how I invest based on this one interview.
https://podcasts.apple.com/us/podcast/the-meb-faber-show-better-investing/id1128955736?i=1000712723958
In the last 3 months, VOO+SPY did much better than VXUS. In fact, QQQ doubled XVUS.
https://schrts.co/SvWkQybv
Early in 2025, XVUS did much better.
=================== That worked in 2010-2024. In that times I consistently posted about investing in the US.
Is it going to work in the next 10 years?
It stopped working in 2025.
While the SP500 could lag, other US categories might not, like VTV=value.
Why not diversify starting at 10% with VTV+VXUS?
BTW, VGK(Europe) has been doing better than international.
Until recently, U.S. equities outperformed for approximately 14 years.
Earnings growth for U.S. companies was stronger than that of overseas companies.
But it's important to note that multiple expansion and currency tailwinds
(for U.S. based investors) contributed considerably to performance.
How will foreign and domestic equities perform during the next 10 years?
https://www.thebostonadvisor.com/us-vs-international-stocks/
Off the rails perhaps … but I’ve never worked so hard to diversify. As many have noted, that’s more then just 60/40 or 40/60 or whatever. I like to include one or two “odd-ball” holdings in the portfolio, even if they’ve lagged the markets and even if I couldn’t honestly recommend them to someone else.
Back to D&C - A first class outfit. Sounds like they’ve done a lot to try and stabilize DODBX in recent years. And I never understood why a lot of balanced or allocation funds have such skimpy exposure to non-U.S. holdings. Never made sense. Keeping expenses lower is all I ever figured out.