After an extended period of underperformance vs the U.S., a case can be made for a turn in this cycle. Today’s 30% discount to domestic markets may offer a compelling starting point
Transcript
| Danton Goei: | Yeah, it certainly can be a challenge to get US investors at least interested in international equities after the last 10 to 12 years of US dominance. But one thing I think it's worthwhile doing is taking a big step back and seeing that these outperformance, US versus international, they go through cycles. So certainly the last decade has been a pro-US cycle. But before that, in the period before, say the decade ending in 2007, that decade saw international equities outperformed by over 300 basis points a year for a decade. And then the decade ending in December '87, there you saw a decade of outperformance by international equities by over 600 basis points a year for a decade. So you can't have these big swings. And so now after a really strong pro-US decade where US is outperformed by a lot, you have this big valuation difference where the US multiple is almost 20 times and the international index is trading about 13 and a half times. So that big difference there, over 30% discount in valuation makes for a very compelling starting point and might make you think that the next decade might be different than the last decade when you're starting from such a huge difference in multiple starting points. And then lastly, I would just say the quality of the international companies, there's a lot of really strong, and they keep on improving quality companies. In Europe, we spoke about a lot of them and these brand name multinational corporations out there that are really attractive. In Asia, you have companies like Samsung or in Japan, a Tokyo Electron that are also really global companies that are really strong. In China, of course you've got a number of internet and technology companies that are... So I think when you look at the quality companies out there, the fact that they're trading is such a big valuation relative to the US and the fact that they go through cycles and we're at maybe towards the end of one of these big cycles that ended up in US outperformance, it makes sense to have increasing exposure, I think, to international for the next decade. |
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