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Thoughts on Emerging Markets?

Posted: Sun Mar 17, 2019 5:16 pm
by pmward
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?

Re: Thoughts on Emerging Markets?

Posted: Sun Mar 17, 2019 8:50 pm
by ochotona
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....

Re: Thoughts on Emerging Markets?

Posted: Sun Mar 17, 2019 11:29 pm
by boglerdude
EMs "better growth" is priced in ?

I tilt away from the US because my income is dependent on US growth

Re: Thoughts on Emerging Markets?

Posted: Mon Mar 18, 2019 8:36 am
by pmward
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.

Re: Thoughts on Emerging Markets?

Posted: Mon Mar 18, 2019 12:00 pm
by Kbg
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

Re: Thoughts on Emerging Markets?

Posted: Thu Apr 25, 2019 8:53 pm
by Mike59
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.

Re: Thoughts on Emerging Markets?

Posted: Fri Jun 14, 2019 10:08 pm
by ochotona
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.

Re: Thoughts on Emerging Markets?

Posted: Sat Jun 15, 2019 10:04 am
by pmward
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!

Re: Thoughts on Emerging Markets?

Posted: Mon Nov 04, 2019 8:00 pm
by ochotona
Here's something really interesting and very topical. I think I need to have some China in my portfolio, but it makes me worry at the same time.

Managing Chinese Equity Risk in Emerging Markets

This XSOE ETF, almost five years old, beats VWO pretty handily. It's pretty much one-of-a-kind as far as I can tell, though I'm sure you could find an actively managed EM mutual fund with a similar philosophy (which charges 3x as much).

Re: Thoughts on Emerging Markets?

Posted: Fri Nov 08, 2019 6:59 pm
by ochotona
A new, tiny ETF, offered by AlphaArchitect.com. I spoke to Jack Vogel over there today.

https://freedometfs.com/

It only invests in Emerging Markets with a high quotient for human liberty and economic freedom. A capital idea!

Re: Thoughts on Emerging Markets?

Posted: Fri Nov 08, 2019 8:04 pm
by Kbg
Historically EM was highly related to commodities. However, with China in the mix now, I’m not sure history is all that relevant.

Re: Thoughts on Emerging Markets?

Posted: Fri Nov 08, 2019 8:06 pm
by ochotona
Kbg wrote:
Fri Nov 08, 2019 8:04 pm
Historically EM was highly related to commodities. However, with China in the mix now, I’m not sure history is all that relevant.

With Taiwan and sometimes South Korea (depending on the index), it's more tech focused. But you still have your Petrobras, Pemex, Rosneft, Lukoil, etc.

Re: Thoughts on Emerging Markets?

Posted: Sat Nov 09, 2019 8:06 am
by ochotona
MangoMan wrote:
Sat Nov 09, 2019 7:40 am
ochotona wrote:
Fri Nov 08, 2019 6:59 pm
A new, tiny ETF, offered by AlphaArchitect.com. I spoke to Jack Vogel over there today.

https://freedometfs.com/

It only invests in Emerging Markets with a high quotient for human liberty and economic freedom. A capital idea!
While I am 100% in favor of human liberty and economic freedom, mixing politics and investing* is not the way to maximize profits. As long as you realize this going in, have at it.

I will also, again, recommend staying away from ETFs that trade on low volume.

*mixing politics and sports is also not the way to maximize profits. (see ESPN, NFL, NBA)
*mixing politics and Thanksgiving, however, is a way to save on Christmas gifts. O0

Challenging to trade low volume ETFs. You have to use limit orders, take a look at the charts, trade small blocks. But at some level you have to mix politics and investing. I just don't think you could invest in the late 1930s and into the early 1940s and be OK with holding German war stocks.

Re: Thoughts on Emerging Markets?

Posted: Sun Nov 10, 2019 12:24 am
by Smith1776
Fully one fifth of the equity portfolio of my portfolio is invested in emerging markets. Emerging markets SCV to be exact.

Emerging markets are riskier than developed markets. And markets are very efficient. It stands to reason that the market will then price emerging market stocks to have higher expected returns. This is doubly true for the SCV regime.

The PP has a limited amount of equity exposure. Tilting the stock portion of the portfolio towards the riskiest parts of the market makes eminent sense IMO.

Re: Thoughts on Emerging Markets?

Posted: Sun Nov 10, 2019 6:06 pm
by ochotona
Smith1776 wrote:
Sun Nov 10, 2019 12:24 am
Fully one fifth of the equity portfolio of my portfolio is invested in emerging markets. Emerging markets SCV to be exact.

Emerging markets are riskier than developed markets. And markets are very efficient. It stands to reason that the market will then price emerging market stocks to have higher expected returns. This is doubly true for the SCV regime.

The PP has a limited amount of equity exposure. Tilting the stock portion of the portfolio towards the riskiest parts of the market makes eminent sense IMO.
That sounds familiar... https://portfoliocharts.com/portfolio/s ... fat-tails/

Yeah, I'm torn about this tiny fund. FRDM. It is so friggin' small. I think it would be a nightmare to momentum trade it. I think the only way to own it is to really buy it and hold it, have a small strategic allocation to it, and kind of forget about it. Then maybe you wake up to a pile of cash in your account and an email from your brokerage saying, "Oh, by the way, your ETF holding FRDM got delisted and liquidated last week"

SOUTH KOREA

Posted: Sun Nov 24, 2019 9:56 am
by ochotona
If you pair up some international developed market ETFs with certain other emerging market ETFs, you either omit or double-dose on South Korea.

XSOE and FRDM, discussed here earlier, both have S. Korea in them, so if you also get Vanguard VEA, you double-dose the kimchi.

IDEV is a developed market ETF that does not feature S. Korea, so if you pair that with EEM, you totally omit S. Korea.

Just thought I'd point that out...

Re: Thoughts on Emerging Markets?

Posted: Sun Nov 24, 2019 10:02 am
by dualstow
Smith1776 wrote:
Sun Nov 10, 2019 12:24 am
Fully one fifth of the equity portfolio of my portfolio is invested in emerging markets. Emerging markets SCV to be exact.
...
It stands to reason that the market will then price emerging market stocks to have higher expected returns. This is doubly true for the SCV regime.
How long have you held emerging markets?

Re: Thoughts on Emerging Markets?

Posted: Sun Nov 24, 2019 11:33 am
by ochotona
dualstow wrote:
Sun Nov 24, 2019 10:02 am
Smith1776 wrote:
Sun Nov 10, 2019 12:24 am
Fully one fifth of the equity portfolio of my portfolio is invested in emerging markets. Emerging markets SCV to be exact.
...
It stands to reason that the market will then price emerging market stocks to have higher expected returns. This is doubly true for the SCV regime.
How long have you held emerging markets?
I occupied a position in EM using dual momentum principles, but haven't owned any since mid-2018. I keep monitoring them. Currently don't have any.

Re: Thoughts on Emerging Markets?

Posted: Sun Nov 24, 2019 2:36 pm
by Smith1776
dualstow wrote:
Sun Nov 24, 2019 10:02 am
Smith1776 wrote:
Sun Nov 10, 2019 12:24 am
Fully one fifth of the equity portfolio of my portfolio is invested in emerging markets. Emerging markets SCV to be exact.
...
It stands to reason that the market will then price emerging market stocks to have higher expected returns. This is doubly true for the SCV regime.
How long have you held emerging markets?
I've always had some exposure to EM. At first it was through simply holding market weight index funds.

However, after reading/hearing the excellent work of the likes of Larry Swedroe and Eugene Fama, I'm convinced that factor diversification has efficacy. At the very least, I don't expect it will hurt. In the best case, there should be some benefit.

My current EM factor fund of choice is MEME.B. It's a fund that has Manulife's name on it, but it's actually managed by DFA (scroll down on the page and there are implementation details. yay!).

https://funds.manulife.ca/en-us/etfs/MEME.B

Re: Thoughts on Emerging Markets?

Posted: Sun Nov 24, 2019 2:38 pm
by dualstow
Thanks

Re: Thoughts on Emerging Markets?

Posted: Sun Nov 24, 2019 3:27 pm
by ochotona
MEME.B, less than $8 million AUM? Not dead already?

Re: Thoughts on Emerging Markets?

Posted: Sun Nov 24, 2019 4:13 pm
by Smith1776
ochotona wrote:
Sun Nov 24, 2019 3:27 pm
MEME.B, less than $8 million AUM? Not dead already?
If you think that's bad, their U.S. SCV has even less: $2.76 million.

https://retail.manulifeinvestmentmgmt.c ... tfs/MUSC.B

It's a risk i'm willing to take. Just about all my funds are tax sheltered, so no risk of cap gains in the event of a shutdown for me. Additionally, these are the only funds in Canada with truly decent multifactor exposure (at least IMHO).

Re: Thoughts on Emerging Markets?

Posted: Sun Nov 24, 2019 5:09 pm
by dualstow
MangoMan wrote:
Sat Nov 09, 2019 7:40 am
ochotona wrote:
Fri Nov 08, 2019 6:59 pm
A new, tiny ETF, offered by AlphaArchitect.com. I spoke to Jack Vogel over there today.

https://freedometfs.com/

It only invests in Emerging Markets with a high quotient for human liberty and economic freedom. A capital idea!
While I am 100% in favor of human liberty and economic freedom, mixing politics and investing* is not the way to maximize profits. As long as you realize this going in, have at it.

I will also, again, recommend staying away from ETFs that trade on low volume.

*mixing politics and sports is also not the way to maximize profits. (see ESPN, NFL, NBA)
*mixing politics and Thanksgiving, however, is a way to save on Christmas gifts. O0
Not only is freedom not free, it is a bit expensive.