Britain’s June 23 vote to leave the European Union hit U.S. investors with another in a series of exogenous political, economic and financial shocks.
Now, long-term investors wonder whether it’s time to retreat from global diversification to the perceived relative safety of the U.S. stock market.
Jeffrey Kleintop, chief global investment strategist at Charles Schwab, doesn’t think so.
Kleintop argues in a recent commentary that global stock returns are attractive and international exposure can be a boon to investors’ portfolios in a down market.
Equally important, investors don’t want to miss out on what he calls the next “investing megatrend.”
Over the past 45 years, U.S. and international stocks consistently outperformed each other in alternating periods of time, Kleintop writes.
On a three-year rolling basis, U.S. stocks have outperformed international stocks for 89 months, a tie for the longest run ever.
U.S. outperformance could continue, according to Kleintop, but “abandoning international stock exposure in your portfolio now as the duration of U.S. outperformance sets a new all-time record in July 2016 may turn out to be the worst time.”
Following, Kleintop explains his reasons for not retreating from global diversification:
1. Attractive Returns
Worried about losses over the long term from global diversification?
Kleintop looks to history, and finds that global stock returns have never been negative over the 10 years that followed valuations similar to where they are today.
True, no meaningful relationship between stock market valuations and short-term stock market performance exists, but over a longer period, a robust relationship emerges, he writes.
“Lower stock market valuations have preceded periods of higher future stock market total returns.”