When Did International Equities See Their Strongest Returns?
MSCI EAFE Index in Local Currency (12/31/1969-3/31/2014)
The Importance of International Equity Exposure
An important justification for maintaining international investments in the face of a rising dollar is that diversification and valuation opportunities may be better overseas. Just as investing in only 5 of the 10 sectors of the U.S. economy provides little diversification, restricting investments to just half the world (the United States3) may not provide adequate diversification. Moreover, healthy equity returns existed in overseas markets during previous periods of U.S. dollar strength. If one were able to mitigate the negative impact of currency movements, the potential would exist to better capitalize on this occurrence. In our next blog post, we will discuss the broad-based approach to currency-hedging developed international equities that we launched.
1Sources: MSCI & Zephyr StyleADVISOR, with data as of 3/31/14
2Period: 12/31/69 to 3/31/14. Refers to the performance of the U.S. dollar against the currencies represented in the MSCI EAFE Index
3Refers to how U.S. stocks comprised nearly 50% of the weight of the MSCI ACWI Index as of 3/31/14
Important Risks Related to this Article
Foreign investing involves special risks, such as risk of loss from currency fluctuation or political or economic uncertainty. Investments in currency involve additional special risks, such as credit risk and interest rate fluctuations. Investments focused in Europe or Japan may increase the impact of events and developments associated with these regions, which can adversely affect performance. Diversification does not eliminate the risk of experiencing investment losses.