CHART: You don’t want to miss this new trend
From Ben Morris, Editor, DailyWealth Trader:
Over the past six years, U.S. stocks have screamed higher…
They’ve doubled the performance of stocks around the rest of the world — a 116% gain compared with a 57% gain (*all numbers in this essay are as of Sept. 12).
But recently, that situation reversed…
Over the past four months, non-U.S. stocks have more than doubled the gains in U.S. stocks (8.5% compared with 4.1%). And yesterday, the market gave us a sign that big gains are likely still to come.
If you’ve been reading DailyWealth Trader (DWT), you know we’ve encouraged readers to own foreign stocks for years…
Mostly, this has been because investors around the world suffer from something called “home-country bias.” Nearly all the businesses they buy are based in their home countries… And they either ignore or fear opportunities outside their countries’ borders.
This hasn’t been a problem for U.S.-based investors lately… But now that foreign stocks are outperforming – and now that U.S. stocks are no longer cheap – it’s an even better idea to put some of your money to work in other markets.
Plus, as I noted above, the market just gave us a sign that the gains in non-U.S. stocks will likely continue…
Yesterday, the MSCI World ex USA Index hit a new one-year high. The index is made up of more than 1,000 businesses based in 22 countries. And in the past, new one-year highs were a great sign.
The table below shows how the index has performed after hitting a one-year high. Over the past 33 years, it has happened more than 600 times.
One year later, the index was higher 76.9% of the time… And the median return was 11.5%. (That means you would have made 11.5% or more exactly half of the occurrences.) You can also see the rate of 10%-plus gains and 5%-plus losses…
These are great odds. Based on history, if you were to buy a basket of non-U.S. stocks today, you would have a 54% chance of making 10% or more over the next year… and just a 14% chance of losing 5% or more.
Compare that with the index’s returns after all periods (essentially, buying the index at random). The average and median returns were lower across all time frames. The chances of a positive return were seven to 10 percentage points lower. The frequency of 10%-plus gains after one year was much lower… And the frequency of 5%-plus losses was much higher.
History presents a clear picture… Buying non-U.S. stocks after new one-year highs is a good idea.
You can see how a handful of foreign stock funds have performed relative to the U.S. benchmark S&P 500 Index over the past year in the chart below…
All but Greek stocks are at or just shy of new highs.
If you prefer to keep it simple, you can also consider buying a fund like the Vanguard FTSE All-World ex-US Fund (VEU). It is the largest exchange-traded fund dedicated to diversified non-U.S. stocks. It holds stocks from 54 different countries, with larger weightings in developed markets and smaller weightings in emerging markets.
VEU just hit a new high, too.
If you’ve been dragging your feet on buying foreign stocks, you’ve missed out on great gains lately… But you haven’t “missed the boat.”
Non-U.S. stocks have underperformed U.S. stocks for years. And that situation has started to change only recently. Now that these stocks are hitting new highs, it’s even more likely than before that we’ll see double-digit gains in the year to come.
I strongly recommend you participate.
Crux note: Ben has recommended a few great ways to safely invest in foreign stocks today. So far, his readers are up on all of them – 19%, 31%, 16%, and 1%, respectively. And his top open recommendation just hit 150% since February. For a limited time, you can access all of Ben’s top ideas with a risk-free trial subscription. Get the details right here.