The natural tendency for investors in the US is to overweight US holdings. However, at times - like now, international equities are favored over the US because the asset class as a whole is performing well relative to US asset classes, as a whole.
Two popular and widely used ETFs are EFA (Europe, Far East & Asia) and EEM (Emerging Markets). The two largest holdings represented in the EFA are Japan and the United Kingdom, with a 22% and 21% weighting respectively. By contrast, the EEM's two largest country weightings are China and Brazil at 18% and 16% respectively. The relative strength relationship between EFA and EEM continues to favor EEM, telling me that emerging markets continue to outperform developed markets. However, by taking this analysis one step further, FRN (Frontier Markets) is exhibiting better strength than EEM. FRN’s largest country weighting is Chile at 31%.
It is this type of analysis which helps me to determine where to invest your funds. As I peel back the layers of the proverbial onion; international over US, emerging over developed, frontier over emerging…I am able to peer deeper into the international space and I can provide further analysis into where actual strengths may reside.
The trials and tribulations of the developed markets have been front & center in the news lately, suggesting a more defensive posture with respect to the developed and US equity markets at this time. On the other hand, we continue to see positive developments in the International equity space and superior strength still present in the Frontier and Emerging Markets.
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