Diversified investors may be frustrated by the underperformance of their international equity returns relative to their domestic equity returns over the last 7 years. This frustration may have caused some diversified investors to minimize their rebalancing efforts, resulting in a significant U.S. overweight, and an equally significant international equity underweight. Prudent investors likely know that they need to address this weighting imbalance but they may be asking themselves: Is now the time to rebalance?
As of September 30, 2017. Past performance is no guarantee of future results.
Source: FactSet, MSCI, Standard and Poors.
Source: MSCI, Standard and Poor’s Corporation, FactSet as of September 30, 2017. S&P 500 and MSCI ACWI ex USA Indices shown.
1 Rolling 5-year annualized performance.
Past performance is no guarantee of future results.
|Shiller Price to Earnings*||25.3x||18.0x||11.5x|
|Historical CAPE Percentile*||100th||56th||25th|
|Historical P/B Percentile**||94th||48th||59th|
Source: Thomson Reuters, Robert Shiller, FactSet.
Cyclically adjusted price-to-earnings ratio (CAPE) is a valuation measure that is defined as price divided by the average of ten years or earnings, adjusted for inflation.
* Shiller and CAPE data as of 5/31/17. Data for MSCI US, MSCI EAFE & MSCI EM from 12/04-05/17.
** P/B data is as of 09/30/17. Data for MSCI US from 02/01, EAFE from 09/97, EM from 06/00-09/17.
Source: Bloomberg, Thompson Reuters, Robert Shiller, MSCI.
Data Time Periods: EAFE, Chile, Spain, Brazil, Sweden, Australia, Taiwan, Canada, Switzerland, US: 12/2004–06/2017. EM, India, Mexico, Singapore: 12/2004- 05/2017. Turkey: 11/2005–06/2017. Hong Kong, Malaysia: 11/2005–05/2017. China: 10/2005–06/2017. Indonesia: 8/2006–05/2017. South Korea: 11/2006–06/2017.
France: 01/2006-06/2017. Russia: 12/2005–05/2017. Thailand: 03/2007–06/2017. UK, Germany: 05/2005–06/2017. South Africa: 07/2006–06/2017. Date and time periods vary based on the lack of historical data available for each country. In each country’s case the earliest date that data was available was used.
Source: FactSet, MSCI. Past performance is no guarantee of future results.
Source: Federal Reserve, Bank of Japan, ECB, Swiss National Bank, as of September, 2017.
Diversified investors understand the potential benefits of allocating equity assets outside of the United States to seek to enhance the risk/return profile of their investment portfolios. One thing we know for certain is that the cyclicality, valuations and economic fundamentals of the equity markets will continue to change.
1 Foreign equities may be more desirable, relative to U.S. equities, given the foreign central banks’ encouragement for investors to invest in risk assets relative to extremely low interest bearing securities.
Diversification does not guarantee a profit or protect against a loss in declining markets.
Investments in international securities are subject to certain risks of overseas investing including currency fluctuations and changes in political and economic conditions, which could result in significant market fluctuations.
These risks are magnified in emerging markets.
Price/book (or P/B) ratio is calculated by dividing the market price of a company’s outstanding stock by its book value (total assets of a company less liabilities) and then adjusting for the number of shares outstanding. Stocks with negative book values are usually excluded from this calculation.
Price/earnings (or P/E) ratio is a comparison of the company’s closing stock price and its trailing 12-month earnings per share.
The MSCI ACWI ex USA Small Cap Index captures small cap representation across 22 of 23 Developed Markets (DM) countries (excluding the U.S.) and 24 Emerging Markets (EM) countries. With 4,314 constituents, the index covers approximately 14% of the global equity opportunity set outside the US. The developed market country indices included are: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the U.K. The emerging market country indices included are: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Russia, Qatar, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates. Please go to msci.com for most current list of countries represented by the index.
The MSCI USA Index is designed to measure the performance of the large and mid cap segments of the U.S. market. With 617 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in the U.S. MSCI All Country World Index.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. The MSCI Emerging Markets Index consists of the following 24 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia,nMexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and the United Arab Emirates. Please go to msci.com for most current list of countries represented by the index.
The S&P 500 Index is a capitalization-weighted index of 500 stocks. The S&P 500 Index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The S&P 500 Index is proprietary data of Standard & Poor’s, a division of McGraw-Hill Companies, Inc. All rights reserved.
The indices are unmanaged, are not available for investment and do not incur expenses.
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