International Equities are En Vogue, and Could Stay That Way
Over the last decade US stocks have outperformed the global equity benchmark by about 35% and have outperformed in eight of the last ten years prior to 2017. But that may all be coming to an end. Indeed, so far in 2017 the United States is the third worst performing developed market country (table 1) even as it has turned in a solid 17.9% on an equal weighted basis. Excluding the information technology sector, the United States is THE worst performing market among developed countries, bring in about 13% versus an average of about 20% on an equal weighted basis (table 2). Below we show a few fundamental factors that suggest international stocks may be the place to be for the foreseeable future.
First, valuations. Whether from a bottom-up perspective or top-down perspective, US stocks are expensive relative to the rest of the world. The below table shows our proprietary valuation scoring model aggregated by country. The model assigns a score to each stock based on a variety of important absolute and relative valuation metrics, which we then roll up into a country average. A higher score indicates a more attractive valuation. As the table shows, American stocks are, on average, only cheaper than Finish, Danish and Swiss stocks.