Looking for Value? Go Abroad

By Henry Ma, Julex Capital Management

Since the end of the financial crisis, the US has led the global equity market recoveries for over eight years.  Table 1 shows the total returns of US and international equity market ETFs.

The S&P 500 Index ETF (SPY) gained 303.8% after it bottomed on March 9, 2009, while the MSCI EAFE Index ETF (EFA) and MSCI Emerging Market Index ETF (EEM) only rose approximately 150%. As US stocks are hitting records day after day, many investors have become more and more concerned about the valuation of the market.

The monthly Bank of America Merrill Lynch fund manager report found 83 percent of respondents saying US stocks are too overvalued, a record number since 1999. The widely-quoted Shiller PE Ratio has reached 30, much higher than the historical average of 16. So how can investors find value in equities?

Table 1: Global Equity Market Performance (%)

ETF Name YTD 2017 1-Year 3-Year 5-Year Since 03/09/2009
SPY SPDR S&P 500 Index ETF 11.4 15.8 34.6 93.7 303.8
EFA iShares MSCI EAFE Index ETF 17.8 18.2 8.1 51.9 157.6
EEM iShares MSCI EM Index ETF 25.7 22.6 5.0 21.3 141.5

Sources: Factset. As of July 31, 2017