This article originally appeared on The Humble Dollar.
Do I sound like a broken record? Last week, the performance gap between US and foreign stocks widened further. The Vanguard Total Stock Market Index Fund (NYSE 🙂 ETF has now returned 21.6% so far in 2021, while the ex-US Vanguard FTSE All World ETF (NYSE 🙂 has only increased by 9%. , 4%.
The relative weakness of international funds has become so common that it rarely makes financial news. What’s different this time: The economic landscape would appear to favor foreign stocks, especially emerging markets.
Go back a year. Stock markets around the world were in a correction for garden varieties – down about 10% from their third-quarter high – with tech companies taking the brunt of sales. Small caps and value sectors held up somewhat better.
Then the buying frenzy started again and we had the second wave of the COVID-19 bull market that began in March 2020. As we entered 2021, overseas markets were outperforming, propelled in part by the weaker dollar. But the tide turned and US stocks quickly took the lead – and that’s where they stayed.
Now consider the current economic context: inflation fears, rising commodity prices and rising interest rates. In the mid-2000s, when these factors converged, they turned out to be bullish for foreign companies, especially those in emerging markets. In 2003, 2005 and 2007, emerging market indices led the bull market load. This is not the case this year. While commodities are on fire in 2021, stocks of foreign companies just can’t seem to find their place, at least relative to the.
If you’re like me, you have a globally diversified basket of low-cost index funds, which means that only a portion of your portfolio is invested in large-cap US stocks. You may feel like you’re missing out on something, even if your overall portfolio is up sharply in 2021.
This is even more difficult for older investors who have a high allocation to bonds. The Vanguard Total Bond Market ETF (NASDAQ 🙂 is down 2.1% in 2021, rivaling its loss of 2013, which was the worst year since the fund started trading in 2007. And that is. with reinvested dividends. Watching inflation eat away at yields only adds to the inconvenience.
At the end of the line : Financial markets are celebrating, but many investors are not having fun.