In this week’s Macro Theme, we review our “Slowing Dragon” theme. We began discuss...
Core Idea for Total International Exposure
06/02/2016 10:00 am EST
In the absence of any real excitement or edge in domestic equities, we have shifted our focus to international stocks as a potential growth engine states David Fabian, editor of Flexible Growth & Income Report.
Remember that international stocks have fallen hard and fast over the past several years; crippling amounts of debt and bailouts has up until recently simply resulted in more loses.
There’s almost nothing to get excited about when it comes to foreign equities, which is why we are really starting to take notice of them.
Sometimes markets need to reach a level of absolute despondency before a change in trend and sentiment can take place. That is exactly what we expect to happen in the coming 6-12 months.
From a strategy perspective, we feel that our existing holding in the iShares Core MSCI Total International Stock ETF (IXUS) continues to present good relative value at current levels.
In fact, from a technical perspective, we are just observing it cross above its 200-day simple moving average, which is a fundamental building block for a bullish move higher. As such, we are now increasing our position in IXUS.
The fund has broad-based international stock holdings that include 3,774 publicly traded companies domiciled outside the United States.
This fund charges a rock-bottom expense ratio of 0.14% and is a very simple way to add both developed and emerging market countries to our portfolio in a single position.
Since international stock funds such as IXUS have been broad underperformers of US listed equities for years, our thesis is that we will begin to see that divergence narrow over time.
Foreign equities are generally much further from their most recent 2016 highs than domestic stocks, which could lead to broad relative outperformance in the event stocks continue marching higher.
Furthermore, it is likely that because of this underperformance, foreign equities might not exhibit as much downside price action if volatility does return sometime during the summer months.
By David Fabian, Editor of Flexible Growth & Income Report
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