While the last decade has seemed as if it belonged to U.S. stocks, the future may be more nuanced and more international. Here’s why it may be time to look elsewhere and reposition your portfolio.
Over the past 10 years, few stock markets have outperformed the U.S., where several sectors have experienced double- or even triple-digit growth.
For example, an initial amount of Can$100 invested in the S&P 500 Index at the beginning of 2011 was worth around Can$470 a decade later, as the graph below shows. This is an enviable total return of approximately 370% or an annualized average of 37%.
Elsewhere in the world, several key indices have not performed as well over this period. For example, an investment in the MSCI Emerging Markets Index (Can$), which includes China’s dynamic economy, underperformed in the S&P 500 between 2011 and 2020.
In the short to medium term, the world’s largest economy is likely to enjoy a sharp rebound once the pandemic is under control, thanks to an ambitious US$2 trillion stimulus package and consumers eager to start spending and travelling again. A similar recovery appears to be emerging for Canada.
However, will U.S. stock markets continue to drive returns? As the table above shows, the future looks more nuanced. Important points worth thinking about:
In the longer term, a number of demographic and economic indicators favour emerging markets: a young, increasingly educated and urbanized population, which is swelling the ranks of a middle class hungry for goods and services.
It’s a well-known fact that sound portfolio diversification helps to improve performance while mitigating risk. And over the next few years, that diversification seems to include greater international exposure:
Mutual funds and ETFs are the best way to harness their potential. By definition, these solutions are much more diversified and less subject to market moods than individual stocks. The ability to increase international exposure provides investors with one more tool to help them achieve their financial goals.
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