Moreover, academic research has found that outperforming markets over three to 12 months typically continue to perform for another three to 12 months. This type of momentum trading is fueled by a number a factors, including the bandwagon effect where investors chase hot sectors or an initial under reaction to positive news.
Consequently, momentum eventually could give way to mean reversion, and after years of underperforming U.S. markets, international stocks could have a long ways to go.
“These are still early days,” Bernstein said in the article. “This is a time to be patient.”
For those who don’t feel comfortable without some kind of rebalancing regiment, Bernstein suggested using a so-called threshold rebalancing technique, which involves trimming exposure after a position hits a target threshold, such as growing 5 percentage points in the overall portfolio. Alternatively, Bernstein advises rebalancing every two years instead of every year, which could cause international positions to become more overweight.
For more information on international markets, visit our global ETFs category.
Max Chen contributed to this article.