The third quarter of 2024 has painted an intriguing picture in the world of investments. While the S&P 500, the bellwether of the U.S. stock market, maintains its year-to-date lead, international stocks are quietly making their mark. This performance discrepancy has ignited a debate: Is it time for investors to cast their nets wider and explore opportunities beyond the familiar shores of the U.S. market?
A closer look at the data reveals that the iShares MSCI ACWI ex U.S. ETF (ACWX), which tracks global stocks excluding those in the U.S., has outperformed the SPDR S&P 500 ETF Trust (SPY) this quarter. This suggests that the appeal of international markets is growing, prompting experts like James St. Aubin, CIO of Ocean Park Asset Management, to advocate for a broader investment horizon. St. Aubin believes that focusing solely on the U.S. market limits the potential for growth, emphasizing the importance of recognizing the vast opportunity set that international markets present.
However, the U.S. stock market’s historical outperformance cannot be ignored. The S&P 500’s impressive 17% year-to-date gain dwarfs the 7.5% rise of international equities. This track record has instilled a sense of confidence in U.S. investors, making it challenging for international markets to compete.
Yet, a closer examination of single-country ETFs uncovers a fascinating trend. Funds focused on Argentina, Turkey, Malaysia, Peru, and Taiwan have, at times, surpassed the S&P 500’s gains this year. This highlights the potential for significant returns in specific international markets, even amidst the U.S. market’s dominance.
However, it’s essential to acknowledge the volatility of these single-country ETFs. Recent market fluctuations have resulted in only two of these funds maintaining their lead over the S&P 500. This underscores the importance of careful research and risk management when venturing into these markets.
The contrasting performance of single-country ETFs focused on Mexico, Brazil, and Hong Kong further emphasizes the need for a discerning approach to international investments. These funds have experienced significant declines this year, serving as a reminder that not all international markets are created equal.
In light of these complexities, investment firms like Ocean Park Asset Management have adopted strategies that prioritize risk management. Their Ocean Park International ETF (DUKX) employs a trend-following process, tactically allocating between international equity ETFs to capitalize on upward trends while mitigating losses during downturns.
The fund’s current holdings reflect a diversified approach, with significant exposure to broad international and emerging market ETFs, complemented by smaller positions in single-country funds. This strategy aims to balance the potential for high returns with the need for risk mitigation in the ever-changing global investment landscape.
Despite the growing appeal of international markets, some experts remain cautious. Yardeni Research, for instance, maintains a “Stay Home” investment bias, favoring U.S. financial markets. They believe that the U.S. economy is undergoing a fundamental reset, paving the way for sustained growth without inflationary pressures.
As the debate between U.S. and international investments continues, one thing is clear: the global investment landscape is in flux. Investors must stay informed, adapt to changing market dynamics, and consider a diversified approach that balances risk and reward. Whether the U.S. market’s dominance will persist or international markets will gain further ground remains to be seen. However, one thing is certain: the world of investments is anything but static, and those who embrace change and explore new opportunities are likely to be the ones who reap the greatest rewards in the long run.
