This week’s Market Monitor says as the global economy improves, now is the time to invest in foreign companies, whose stocks are likely to outperform.
John Merrill, Tanglewood Total Wealth Management Founder & Chief Investment Officer
Our overriding theme for 2018 is—the synchronized global upturn. We have not seen such broad-based improvement in the global economy in at least 15 years. 85% of countries improved their exports last year—a record. Europe and Japan are growing at rates not seen since the 1990s. Whereas stock markets across the world are benefitting from this mega trend, the stocks of foreign companies are likely to outperform simply because they are coming out of a more recent economic recession/slowdown (2012-2014) that we did not have here at home. As a consequence, their earnings, margins and stocks all suffered compared to ours. That gives them much more snap-back potential—especially with their overall valuations at much lower levels than those we have here in the U.S.
The Vanguard Total World Stock Index –less U.S. ETF (VEU) is an excellent starting point. It offers the broadest possible coverage of foreign stock markets. With this one fund, you know you have captured the big movement in foreign stocks both from developed economies and from emerging ones. All at a very low cost.
The Vanguard Emerging Market Index ETF (VWO) is a good way to overweight your emerging market exposure. Emerging market stocks are more leveraged to the global ecomomy than are developed country stocks. So even if they were relatively the same value as developed country stocks, this would be a good overweight. However, right now, Emerging market stocks are also the cheapest stock asset class, based on earnings history. This is a very attractive combination.
iShares Technology Sector ETF (XLK)— We believe this sector is best positioned to ride this global growth wave. XLK is by far the highest concentration of the technology stocks that are changing virtually every aspect of the world we live in which means they are a major force behind almost any growth, anywhere.