Thoughts on Emerging Markets?

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pmward
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Thoughts on Emerging Markets?

Post by pmward » Sun Mar 17, 2019 5:16 pm

So the backstory is that I'm doing a bit of a rebalancing this week. As I mentioned in another thread, I had my Golden Butterfly in my taxable and a 60/40 3 fund portfolio in my 401k. I have decided to go all in on the GB and incorporate my 401k into the mix by substituting in TBM for the LTT/STT barbell within my 401k and holding enough gold in taxable to cover all accounts. So in doing this, I will have to do some rebalancing to add more gold into my taxable accounts (as well as replenish a bit of cash I'm having to pull out to pay taxes... but that's another story).

So, in doing this rebalancing I'm killing my entire international position. I had a 20% Ex-US allocation in my 401k. It does make me feel a bit nervous going all in on U.S. with all the pessimism on U.S. valuations and growth prospects going forward. Although, I know that Harry Browne believed that stocks should be held locally to match your local economic conditions. So one thing I'm thinking of, since I view the 20% SCV allocation in the GB as a variable portfolio, is maybe splitting that up to 10% SCV / 10% EM through IEMG. I think that EM's are a bit more volatile than the broader Ex-US so I can get a pretty good bang out of just a 10% allocation. This would also keep my PP still 100% U.S, per Harry's recommendations when you exclude my 20% VP. I also hear that EM's are more attractive than U.S. from a valuation and future growth standpoint right now. However, it does introduce a factor of foreign currency risk into the equation, as a great deal of EM gains/losses are driven by currency gains/losses (and gold is a sufficient U.S. dollar hedge in and of itself). While going full on SCV backtests much better, in backtesting recent moves tend to have a bit more impact on the end result than past moves, and nobody really knows what the future holds. In full VP speculative form, there is reason to believe that EM's will out-perform U.S. over the next decade. So I'm kind of torn. But I placed my sell orders on the mutual funds today, so I'll be making my new purchases Tuesday once those clear, and as such I need to make up my mind ASAP. I'm currently torn.

So what are your guys thoughts currently on EM's and international exposure in general? What are your thoughts on Harry's recommendation of staying 100% U.S. to keep the portfolio in line with local conditions? Even if there is a benefit to EM's, is it great enough to be worth complicating the portfolio to add another asset to?
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ochotona
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Re: Thoughts on Emerging Markets?

Post by ochotona » Sun Mar 17, 2019 8:50 pm

International and EM have been losers for a long time but maybe the tide will turn someday. That's why I like Global Equities Momentum... If it makes sense to add ex-US the market will tell you. International makes sense occasionally. But having a rigid fixed allocation? Mmmmm....
boglerdude
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Re: Thoughts on Emerging Markets?

Post by boglerdude » Sun Mar 17, 2019 11:29 pm

EMs "better growth" is priced in ?

I tilt away from the US because my income is dependent on US growth
pmward
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Re: Thoughts on Emerging Markets?

Post by pmward » Mon Mar 18, 2019 8:36 am

I'm not sure if the better growth is priced in, I mean it has been like 5 years or something like that since EM's have hit a new high, and last year was a year long bear market for them.

I think for now I'm just going to stick to U.S. small caps. I think this is something I'm going to have to think hard on. The more I think on it, the more I start to believe that EM's fit more into the gold bucket for U.S. currency hedging than into the equity bucket. So even if I did want to include some EM's, I'm not sure if it's more appropriate to trade equities, or maybe trade 5% gold for 5% EM's? And the backtests for that (obviously) it's not as efficient as just 20% gold. I just can't seem to make my mind up enough to pull the trigger either way. So I'm probably just going to keep it simple for now and continue to think on it. Unfortunately, HB never really commented on EM's and I'm also not finding anything from Dalio in regards to emerging market equities and his all-weather strategy, all they mention in the white paper is EM debt (really can't wait for him to finally release his investment book). I know they trade EM equities in pure alpha, but not really sure if they mess with them in the all-weather.

So I'm still very interested in other people's thoughts on the subject, but I'm not pulling the trigger this week. I think this is something I need to take some time to really digest and think on.
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Kbg
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Re: Thoughts on Emerging Markets?

Post by Kbg » Mon Mar 18, 2019 12:00 pm

ochotona wrote:
Sun Mar 17, 2019 8:50 pm
International and EM have been losers for a long time but maybe the tide will turn someday. That's why I like Global Equities Momentum... If it makes sense to add ex-US the market will tell you. International makes sense occasionally. But having a rigid fixed allocation? Mmmmm....
+1
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Mike59
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Re: Thoughts on Emerging Markets?

Post by Mike59 » Thu Apr 25, 2019 8:53 pm

From a CAPE/Schiller ratio standpoint, EM is where you want to be if you're looking for higher long term returns.

I've bought nothing but EM and Developed Europe for my PP for the last couple of years, both are looking a little richer than I'd like right now (as with most world equities). The true outcome will be 5-10 years out to see whether the US can maintain it's momentum above these other countries , and I don't think it can at these valuations.
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ochotona
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Re: Thoughts on Emerging Markets?

Post by ochotona » Fri Jun 14, 2019 10:08 pm

I just noticed GMO updated their 7-YEAR ASSET CLASS REAL RETURN FORECASTS on 4/30/19. Emerging Market Value they predict will return 7.7% real over the next seven years. That's a lot of sevens there.

That said, I can't find any large, liquid ETFs advertised as EM Value. This article IDs some possible candidates. Of the lot, EEMV is the only one I'd invest in. Low fees, best CAGR, best Sharpe/Sortino, least MaxDD. Free at Schwab.

Just FYI, the EEM ETF has had a total return of 0.00% since 11/1/2007, that's right, going on twelve years. You thought gold has taken a long time building a base. EM has just been relentlessly beaten and beaten and beaten some more.

I'll believe it when I see EEMV pass up SPY. And I think the next recession, whenever that is, will drag EEMV down more.
pmward
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Re: Thoughts on Emerging Markets?

Post by pmward » Sat Jun 15, 2019 10:04 am

ochotona wrote:
Fri Jun 14, 2019 10:08 pm
I just noticed GMO updated their 7-YEAR ASSET CLASS REAL RETURN FORECASTS on 4/30/19. Emerging Market Value they predict will return 7.7% real over the next seven years. That's a lot of sevens there.

That said, I can't find any large, liquid ETFs advertised as EM Value. This article IDs some possible candidates. Of the lot, EEMV is the only one I'd invest in. Low fees, best CAGR, best Sharpe/Sortino, least MaxDD. Free at Schwab.

Just FYI, the EEM ETF has had a total return of 0.00% since 11/1/2007, that's right, going on twelve years. You thought gold has taken a long time building a base. EM has just been relentlessly beaten and beaten and beaten some more.

I'll believe it when I see EEMV pass up SPY. And I think the next recession, whenever that is, will drag EEMV down more.
Yeah, EM's, just like gold, are going to break out like wildfire when they do finally break out. I think the key to both is a pullback in the dollar. The dollar really has been bullying both gold and EM's for years now. I still don't have any EM exposure, but I am keeping an eye out, and if it starts looking tempting I will flex some of my VP over. I would use either EEM or EEMV myself. It is great that we have had this competition for removing commissions on ETF's lately!
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