The past decade has been quite prosperous for U.S. large-cap equities, and investors largely, haven’t had many reasons to invest beyond North America. Recency bias in investing is the tendency for investors to consider recent trends and extrapolate them into the future, but ignoring the long term value of international markets could mean missing out on some of the best run companies in the world!
Considering that certain international markets have better relative containment of COVID-19, and more favourable global trade pacts are expected under a Biden administration, there is an opportunistic case to be made for maintaining or adding a healthy allocation to developed international equities in a strategic portfolio today.
Let’s discuss some reasons why international equities look compelling.
1. International vs. U.S. markets – A story of cyclicality
Recency bias aside, the outperformance of international markets vs. the U.S. is cyclical in nature (see chart below).
While U.S. equities have dominated international equities over the past decade, between 2000 and 2010, international markets delivered better returns than their U.S. counterparts amidst two market recessions.