This week Stratos Private Wealth reallocated investments within the equity portion of our managed portfolios. Ownership of international stocks was increased while trimming domestic investments. Client portfolios now own an “overweight” allocation to international stocks, relative to our benchmarks. The catalyst for this shift is improved momentum for markets outside the U.S., combined with attractive relative valuations.
The S&P 500, a benchmark for the U.S. stock market, has outperformed international markets, such as the MSCI All Country World Ex USA Index, by a wide margin – over 80% since the beginning of 2011. Stratos Private Wealth portfolios have been invested with a bias toward U.S. stocks for that entire time. This tilt away from international investments continued, even as domestic equity market prices outpaced international.
Valuation can be a blunt investment tool, so we waited anxiously for a positive change in momentum before increasing our international holdings to take advantage of attractive relative values abroad.
Several recent economic improvements have pointed to a global economy which is beginning to advance more quickly than the United States. In addition, monetary policy in the U.S. is tightening, as the Federal Reserve continues to raise short-term interest rates. However, central banks in Europe, Japan, and many emerging markets remain accommodative.
As further confirmation, we worked with Ned Davis Research to create a custom indicator (seen in the chart below) which measures relative momentum between the U.S. and international markets. This recently flashed a buy signal, favoring international stocks over domestic companies.
While this may be the start of a secular advance for international equities – further confirmation of that trend would be necessary before allocating even larger investments abroad. As always, we’ll remain flexible and allow the weight of the evidence to dictate any additional changes.
The Standard & Poor’s 500 Index is a capitalized weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing major industries. The S&P 500 is an unmanaged index which cannot be invested into directly. Past performance is no guarantee of future results.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. The MSCI All Country World Ex USA (MSCI ACWI ex USA) Index captures large and mid cap representation across 22 of 23 Developed Markets (DM) countries (excluding the US) and 23 Emerging Markets (EM) countries. With 1,852 constituents, the index covers approximately 85% of the global equity opportunity set outside the US.
Stratos Private Wealth is a division through which Stratos Wealth Partners, Ltd. markets wealth management services. Investment advisory services offered through Stratos Wealth Partners, Ltd., a registered investment adviser. Stratos Wealth Partners and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only; and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. Investing involves risk including possible loss of principal. Some of the information contained herein has been obtained from third party sources which are reasonably believed to be reliable, but we cannot guarantee its accuracy or completeness. The information should not be regarded as a complete analysis of the subjects discussed.