Content Provided by Case Eichenberger, CIMA – Senior Client Portfolio Manager
We all know the story by now. Over the last 10 years, the U.S. market has been on fire, while our friends overseas have missed out. That may be true, but it’s only half of the story.
Investable Stocks Outside of the U.S.
Thanks to CLS analyst Dustin Dorhout for helping me with the data below.
Recently, Capital Group wrote some great points on investing globally, which included a chart showing what percentage of the top-50 stocks each year have been non-US. That inspired us to create the chart below using investable stocks in the ACWI Index.
Three takeaways for your business:
- In the last 10 years, the U.S. market held more than 50% of the top 50 stocks only twice.
- So far this year, during a time when the U.S. has appeared to be the best place to invest, 62% of the top 50 stocks have been located outside the U.S.
- Look outside traditional indexes, and take an active approach.
Digging Deeper: Best Stocks and Best Countries
To compile the chart below, we looked at the company stocks that were included in the index during the entire previous 10 years and sorted by best performing. Of the top 10, the U.S. (teal) has three, and the rest of the world (gold) has 7.
(No surprise to see Netflix on the list. But would anyone have guessed Domino’s would be up there?!)
Below, we highlight the country-by-country breakdown of top-50 stocks from 2009 to 2019. The U.S. leads this list with China not too far behind.
A Better Way? Equal Weight
A few weeks back, I wrote about a portfolio that is equally weighted in each investable country. This is not a new area of research, as equal-weighting countries has been around since at least 2003. Since the start of the S&P 500 equal-weight solution (RSP, teal line), it has outpaced the beloved S&P 500 (SPY, gold line).
Many reasons to invest in an equal-weight portfolio can be found in this S&P 500 white paper, but the main reason is that we believe it provides an overweight to the up-and-coming companies, while avoiding a market-cap weight to the companies that eventually underperform.
Will this work globally? We suspect that it might. Reviewing the last 10 years of a simple, average return of all the investable stocks in a global ETF (MSCI ACWI) shows equal-weight has a higher batting average year-over-year than the U.S. stock market.
In only three years has it failed to deliver higher returns. In our opinion, it is a simple but effective way to invest.
The takeaway: It can pay to be active and selective in global investing. Work to find those companies that can outperform over time.
Thanks for reading.