Selloff or Market Correction? Either Way, Here's What to Do NextSee Overvalued Stocks

US Stocks Outpacing International Shares by Wide Margin in 2023

Published 10/11/2023, 12:48
US500
-
ILF
-
AFK
-
VXUS
-
SPY
-

After world shares ex-US enjoyed a rare if unimpressive win over American shares in 2022 — by losing less — the odds don’t look encouraging for a repeat run of outperformance in 2023, based on a set of ETFs through Thursday’s close (Nov. 9).

In 2022, Vanguard Total International Stocks Fund (NASDAQ:VXUS) (VXUS), which excludes US companies, fell 16.1%. A painful loss, but SPDR S&P 500 ETF (ASX:SPY), a proxy for US companies, retreated even more via an 18.2% decline last year.

The return spread so far in 2023 has widened but now favors US shares by a hefty degree. SPY (NYSE:SPY) is up a strong 14.7% year to date, far above the 5.1% advance for VXUS. Looking at the regional components of global markets shows that only Latin America stocks (ILF) is outperforming the US (SPY) year to date.

Otherwise, the rest of the field is trailing, in some cases by a wide degree. Indeed, African stocks (AFK) are in the red by nearly 17% so far this year.

Equity Markets YTD Returns

The argument for owning a global portfolio of stocks draws on the view that international diversification will pay off eventually. To be sure, there have been periods when that’s true – but not lately. US shares (SPY) earned more than 11% on an annualized basis over the past decade – more than double the 3.4% performance for VXUS, according to Morningstar.com.

The difference is striking, but some analysts warn against using the rearview mirror to dominate decisions about asset allocation when it comes to the global equities market. Developing estimates for expected return, by contrast, suggests a different profile.

“If you’ve been 100% the US the last 15 years, drink some Champagne, pat yourself on the back, but it’s probably the wrong choice now,” says Meb Faber, chief executive of Cambria Investment Management.

One reason for tilting toward foreign stocks is lower valuations relative to the US. As The Wall Street Journal points out, the US has the highest valuation vs. several key markets elsewhere.

Valuation Vs Key Markets

No one knows if the lower valuations in foreign shares will translate to higher performance vs. the US. Meantime, this much is clear: 2023’s horse race is on track to favor American stocks by a wide margin.

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.