Equity Envy: Should Investors in Global Stocks Shift to U.S. Equities?

U.S.-only stock portfolio investors may be the subject of equity envy with their globally invested peers, but to load up on American stocks while ignoring international equities these days may be a bad idea, says a GersteinFisher report released Wednesday.

The recent strong performance of U.S. stock markets has caused many American investors to feel anxious about international investing and to question the merit of globally diversified portfolios. That concern is understandable, considering that U.S. stocks have gained 19% year-to-date on the S&P 500 Index versus a 7% gain for international developed country stocks as measured by the MSCI EAFE Index and a 12% loss for the MSCI Emerging Markets Index.

Yet believing that the U.S. market is the only place to be flies in the face of GersteinFisher’s strong data suggesting the contrary, according to a report written this week by Gerstein Fisher CIO Gregg Fisher.

The New York-based investment management and advisory firm looked at global versus domestic portfolios across rolling periods, using the S&P 500 Index as a proxy for the U.S. portfolio and rebalancing quarterly. The global portfolio had an overweight to the U.S. and a market neutral balance between developed and developing countries.

The result? Over 157 three-year rolling periods, the global portfolio outperformed domestic 68% of the time. And as the investment horizon extended to 10-year rolling periods, the global portfolio beat the U.S.-only portfolio 100% of the time, with an average outperformance of two percentage points annualized.

“In other words, the longer the time period examined, the better diversification performed,” Fisher writes. Is It Time to Abandon a Global Stock Portfolio? “It just seems more prudent to own a broadly diversified global portfolio of stocks than one limited to domestic-only stocks, wherein the investor is subject to the vagaries of a single economy’s business cycle, politics and currency.”