The Lemon Fool

I have to say that I never imagined I'd ever post on this board, when it was at TMF.

But in the absence of anywhere more obvious, here goes...

America, in the shape of the S&P 500 and DJ is at record highs, and has done well for me. Japan has also done well for me. So in terms of switching out of these markets into somewhere less toppy, how are other people thinking about it?

My view: I don't want to switch back into the UK, and I don't feel entirely comfortable with Europe. Fixed income looks like a poor bet, and I don't like structured ETFs pursuing complex strategies.

Asia? Cash? These are curious times...

MDW1954

MDW1954 wrote:America, in the shape of the S&P 500 and DJ is at record highs, and has done well for me . . . So in terms of switching out of these markets into somewhere less toppy, how are other people thinking about it?

The UK market is still below its 1999 high - a pitiful performance. The US, on the other hand is now 60% higher than its 1999 high. Throw in the fact that the USD has risen substantially against the GBP and you have a situation where, even if you had bought at the 1999 top, you'd have doubled your money in sterling terms (plus dividends) by buying the S&P 500 and yet lost money on the FTSE-100.

And in all that out-performance the S&P 500 has hit dozens of all-time highs, as of course logically it would have to have done.

So the question is this. If those dozens of all-time highs for the US market were not an indicator that it was about to under-perform, why would this all-time high be?

I believe the US market is the one market you can never afford to be out of. It is the most capitalist nation in the world, the most politically stable democracy (leaving the Trump issue aside for a moment), has low taxes relative to elsewhere in the West, and is the global driver of the fastest growing businesses, like entertainment, tech and IT.

I'm about 40% in the US - about a neutral weighting, and have no intention of reducing that.

You would have made a profit investing in the FTSE if you include dividends in your calculation. Even more so if you had been re-investing those dividends along the way.

Is the S&P500 a Total Return index - does it included dividends returns?

StepOne

StepOne wrote:You would have made a profit investing in the FTSE if you include dividends in your calculation. Even more so if you had been re-investing those dividends along the way.

Is the S&P500 a Total Return index - does it included dividends returns?

The S&P 500 excludes dividends as does the FTSE-100. Since they are the most quoted indexes it was easiest to compare capital only. The UK index would look a little better if dividends were included because UK companies typically pay out more of their earnings as dividends, which in turn helps explain the UK's capital under-performance. Some ETFs do reinvest dividends automatically but I prefer them to be paid out.

But even with dividends the US out-performance is still considerable. A doubling of capital to date even if you bought at the very top of the dot com bubble is impressive.

Dollar strength will be good news for relatively weak euro countries AND JAPAN.

I would remain biased toward Japan and trim some US for Europe

"I would remain biased toward Japan and trim some US for Europe"

Do you think it is worth using a hedged ETF for Japan or Europe.

Over the last month you would have had much better performance using a hedged etf for Japan due to the weakening Yen.

MartynC27

MDW1954 wrote:Moderator Message:
Is this the right board for this? Switching out of America/Asia is maybe a strategy


Moderator Message:
It is about trading though. But I am the OP so biased I guess.

Do I understand this correctly: the OP happens to be a moderator for the board and is expected to moderate his/her own posts?!!!

GS

GS,

There are about 25 volunteer mods who are assigned to about 9 groupings of boards and the system gives them moderator rights on the group(s) of boards they are assigned to. Some are assigned more than one group, some only one group, and some have all boards assigned (they tend to be based on the other side of the world so can keep an eye on things overnight). It is not illegal for a mod to post in the board group that they are assigned to moderate, and equally the other mods in that area don't give them any special treatment.

We are all trying to do our bit as volunteers in figuring out how to make it run smoothly behind the scenes. There have been some fantastic mod/admin errors - go and read the the cookery section thread on soggy bottoms if you want to be rolling around on the floor.

You can see who is a mod - if it matters - by looking at the colour of their names. Green is a mod. Red is god (aka stooz & clariman as admin). Blue is a normal member.

regards, dspp (not a mod in this group by the way, and not clever enough to do short term trades the way you folks do)

MDW1954

why would you sell shares in a country that has the worlds wealthiest 300 million consumers. Most of the worlds Premier Companies and some of the brightest minds. I am increasing my exposure to the US both by equity and currency.

why would you sell shares in a country that has the worlds wealthiest 300 million consumers. Most of the worlds Premier Companies and some of the brightest minds. I am increasing my exposure to the US both by equity and currency.

Because it seems very richly priced by historic norms, in short.

That said, I'm with you to the extent that one of the switches that I am mulling is moving partially out of the S&P 500 and adding to my holding of a couple on American income-centric ITs.

The current issue of Fortune magazine, by the way (which I've since read, as it arrived this week), makes much the same point.

MDW1954

The current issue of Fortune magazine, by the way (which I've since read, as it arrived this week), makes much the same point.

Is this to cut back on the S&P500?

flyer61 wrote:why would you sell shares in a country that has the worlds wealthiest 300 million consumers. Most of the worlds Premier Companies and some of the brightest minds. I am increasing my exposure to the US both by equity and currency.

Because the price of the shares may be too high; because you judge the wealthiest 300 million consumers might get get poorer (BTW they are the wealthiest 300m only in the average); because there are other brightest minds in other countries; because the Premier Companies could become Yesteryear's Premier Companies; etc. etc.

Investing is a forward-, not backward-looking exercise...

GS

GoSeigen wrote:

Moderator Message:
Moving to strategy board leaving ghost on trading my way to a million. Raptor.

Thanks Raptor, hope most agree this is a more apt board for the thread. [Though a few may argue this is a board for discussing "investment strategies", not "investment strategy"!!]


GS

Purely on valuation grounds I can understand why someone might want to cut down on exposure to US equities, but why Japan? P/E and P/B are about half that of the US market, not much more expensive then global EM. Are you really wanting to run for the hills just because the Japanese market has been delivering decent returns for a change?

Don't forget as well that much of the performance you have seen over the last year has been due to pound depreciation* rather than stock market appreciation. In dollar terms the Japanese market is up about 9% over the last year. Hardly stratospheric returns, and only about 14% over the last 3 years, compared to over 30% for the US market.

* GBP/USD has gone from about 1.49 to 1.25, so every dollars worth of foreign assets you have held (priced in dollars) has gone up around 19%.

Sorry, did not express too well and can no longer edit. Hopefully the point about the change in exchange rate was clear enough.

[Though a few may argue this is a board for discussing "investment strategies", not "investment strategy"!!]

Indeed!

MDW1954

The current issue of Fortune magazine, by the way (which I've since read, as it arrived this week), makes much the same point.

Is this to cut back on the S&P500?

Yes, in essence. Very much so.

MDW1954

Purely on valuation grounds I can understand why someone might want to cut down on exposure to US equities, but why Japan? P/E and P/B are about half that of the US market, not much more expensive then global EM. Are you really wanting to run for the hills just because the Japanese market has been delivering decent returns for a change?

You make a good point. But I've held Japan for five years, have had a decent run, and was wondering if that run might continue, or if there were better bets out there. I'm very much LTBH by inclination, but I'm more prone to switch trackers than individual stocks, and have generally done OK out of it. Nothing especially scientific -- simply taking some gains off the table, and re-investing where valuations are less frothy.

But I accept that the case is stronger for the S&P 500 than it is for the Nikkei.

MDW1954

MDW1954 wrote:

Purely on valuation grounds I can understand why someone might want to cut down on exposure to US equities, but why Japan? P/E and P/B are about half that of the US market, not much more expensive then global EM. Are you really wanting to run for the hills just because the Japanese market has been delivering decent returns for a change?

You make a good point. But I've held Japan for five years, have had a decent run, and was wondering if that run might continue, or if there were better bets out there. I'm very much LTBH by inclination, but I'm more prone to switch trackers than individual stocks, and have generally done OK out of it. Nothing especially scientific -- simply taking some gains off the table, and re-investing where valuations are less frothy.

But I accept that the case is stronger for the S&P 500 than it is for the Nikkei.

MDW1954

If I was to vary my asset allocation (I am not going to at present) I would prefer to do it on valuation grounds rather than past performance. On valuation grounds, Global EM, Japan and developed Asia/Pacific are all reasonably priced compared to the global market average. Europe/UK about average and the US above average. I don't think any markets are particularly cheap though unless you want to fish on a more granular level. However, the risk free rate is also very low, so many people argue that makes current valuations ok. I am somewhat sceptical about that, but choosing not to act on that scepticism right now.

One thing I would add is that although the US equity market is on a high valuation, it is arguably the market with the least risk (certainly the lowest volatility). So even if there was a significant worldwide correction, it would not surprise me if the US market fell the least.