Half of the financial advisors who tuned into an August 20 webcast said they’re still underweight international stocks. Another 42% said they’re already diversified enough. Only 9% weren’t convinced the international rally will last.
- Half of advisors polled during the webcast said they’re still underweight international stocks.
- U.S. money market funds hold about $8 trillion in assets, with $3 trillion in excess cash.
- International flows have only modestly increased over 18 months, versus a decade favoring the U.S.
Josh Rubin, client portfolio manager at Thornburg Investment Management, addressed the question during the webcast. Kirsten Chang, VettaFi’s senior industry analyst, hosted the event, titled “The Rise of International Equities.”
See more: Why International Stocks Are Outpacing the U.S. Again
Advisors have been asking Rubin how much international exposure actually makes sense. Most major asset allocators recommend putting 25% to 40% of client assets outside the U.S., he said. That’s roughly in line with the U.S. share of global GDP and corporate earnings.
U.S. money market funds hold about $8 trillion in assets, Rubin said. Roughly $3 trillion of that is considered excess cash on the sidelines. As a share of GDP, that’s close to where it stood during the 2008 financial crisis.
Flows into international markets have only modestly picked up over the past 18 months. That’s nowhere near the decade of money that favored the U.S. In Rubin’s view, that makes today’s international buyers early rather than late, since the flows suggest the trade isn’t crowded yet.
Buying U.S. stocks at today’s valuations has historically led to weak returns over the following five years, Rubin said. He tracked the S&P 500’s price-to-earnings ratio each month since 1990 against the index’s return over the next five years. The pattern held whether or not the Magnificent Seven were included.
Currency has also played a role, according to Rubin. About a third of the U.S. market’s outperformance from the 2010s through 2022 came from a strengthening dollar. The dollar weakened between 2% and 10% last year, giving international returns another tailwind.
Advisors looking to close that gap have two options from Thornburg: the (TXUE ) and the (THOR). Both funds are built around the same international value and income opportunity Rubin described throughout the webcast.
Even without translating into dollars, share prices abroad have generally outpaced the U.S. over that stretch, Rubin said. A German investor buying German stocks has seen slightly better returns than an American buying the S&P 500.
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