With regime change in Washington, D.C., a new era could be dawning for international equities, indicating advisors may want to consider reducing US-heavy allocations.
An avenue for prudently increasing exposure to ex-US developed markets is with WisdomTree’s Developed International Model Portfolio.
“This model portfolio is designed for investors with a long-term horizon looking for exposure to a broad universe of Developed International equities primarily using factor focused ETFs,” according to the issuer. “The selected ETFs provide certain factor tilts that have the potential to generate excess return relative to comparable cap-weighted benchmarks over longer-term holding periods. The strategies may use both WisdomTree and non-WisdomTree ETFs.”
Highlighting the allure of this model portfolio, some big asset managers are forecasting tepid long-term returns for U.S. stocks and more impressive figures for international equities.
“BlackRock, for example, estimates that U.S. stocks will produce a return of 5.8% a year over the next 10 years, compared with 7.1% for European stocks and 7.3% for emerging markets,” reports Nir Kaissar for Bloomberg. “Vanguard estimates that U.S. stocks will deliver a return in the range of 3.9% to 5.9% a year over the next 10 years, while foreign stocks will generate a return closer to 7.4% to 9.4%.”
Other Reasons to Look Abroad
The WisdomTree model portfolio is advantageous for other reasons. For example, it excludes equities in the United States and China. Certain geopolitical events in the aforementioned countries can be avoided, such as the recent U.S. presidential election, giving investors a measure of safety.
International markets have the potential to provide growth and diversification in different economic cycles, and with compelling valuations for the group, the asset class could be ready to shine as the new White House takes a less combative tone toward European trading partners.
Other asset managers see opportunity outside the U.S. going forward, further highlighting potential benefits with the WisdomTree model portfolio.
“Boston-based money manager GMO, whose forecasts are widely followed, expects U.S. stocks to lag those in other developed countries by roughly 5 percentage points a year over the next seven years after taking inflation into account. And it estimates the margin could be as high as 15 percentage points a year relative to emerging-market stocks,” according to Bloomberg.
For more on how to implement model portfolios, visit our Model Portfolio Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
