An Uncrowded Trade

My family and I recently returned from a trip to Crested Butte, Colorado. It’s a slice of heaven, and we have visited the little mountain town for years. It was our first family trip since COVID, and we weren’t sure what to expect. What we found were crowds. The airports, restaurants, shops, and streets were teeming with people.  We were shoulder to shoulder almost everywhere we went, except when we went hiking.

Crested Butte is populated with beautiful trails like Oh Be Joyful, Brush Creek, Crystal Mill, Trail 403, and Copper Lake. When we ventured out, we rarely saw another human being. Our favorite hike this past trip was Copper Lake. It’s an eleven-mile out and back trail. We passed Judd Falls, several streams, and meandered through quaking Aspen trees. More importantly, it was uncrowded.

A current uncrowded trade is investing in international stocks, especially in emerging markets. For the past fifty years, the MSCI EAFE International Index has trailed the Dow Jones Industrial Average by 1.28% per year, or 2,000% in total. A $10,000 investment in the Dow Jones on January 1, 1970, is now worth $432,840, whereas the MSCI International Index grew to $233,100, a difference of $199,740. The EAFE index has also trailed the Dow Jones over a 1-, 3-, 5-, and 10- year period.  International stocks are an uncrowded trade because few want to invest in this category. Investors want to own large-cap US growth stocks like Facebook, Alphabet, Apple, Amazon, and Netflix. However, from 1970 to 2011, international stocks outperformed US companies. And from 2003 to 2007, they trounced US stocks.  

Emerging markets are falling because of the Chinese Government’s crackdown on tech and gaming stocks. Over the past six months, the iShares MSCI China ETF (MCHI) is down more than 21%. Chinese stocks like Alibaba, Baidu, and Tencent are down 22.5%, 34.5%, and 40%, respectively, over the past six months. If you want emerging market exposure without Chinese stocks, consider the iShares MSCI Emerging Markets ex-China ETF (EMXC) or the Alpha Architect Freedom 100 Emerging Markets ETF (FRDM).

International stocks make up close to half of the global market capitalization for stocks, so it’s not wise to ignore companies beyond our borders. An allocation between 5% and 25% to international stocks makes sense for most investors. Global stocks are an uncrowded trade, and at some point, they will outperform US stocks, which will make all the difference.

Two roads diverged in a wood, and I – I took the one less traveled by, and that has made all the difference. ~ Robert Frost

August 3, 2021

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your