EC Globally Diversified Portfolio Strategy - Back In Favor?

Rally In Risk Assets Ex-US: US stocks and bonds took a back seat to offshore rallies this week, providing some much-needed lift to the idea that holding a globally diversified portfolio is more than an outdated academic concept. But let’s not get ahead of ourselves. It’s too soon to declare the end has arrived for the long running dominance of American risk assets on the global stage, but suddenly it’s easier to wonder if this week’s results are a preview of things to come.

Leading the way higher this week for our standard set of global market ETFs: iShares Latin America 40 (ILF), which rallied 4.8% for the five trading sessions through today’s close (Oct. 23). Impressive, although ILF still has a long way to go before it begins to impress on the performance front. Year to date, the ETF is down nearly 32%--the biggest loss in our primary global opportunity set. But for this week, at least, there are signs of life in one of 2020’s most battered regions.

Stocks in Africa were the week’s second-best performer. In contrast, with ILF, VanEck Vectors Africa (AFK) not only had a good week (+1.5%), but it continues to post a strong upside momentum profile. That’s clear in the chart below and via our in-house momentum ranking system, which currently scores AFK at 90 (relative to a possible 100, the strongest upside reading) in the table that follows per the MOM column. ILF’s MOM score, on the other hand, currently ranks at a weak 40. (For details on all the risk metrics as well as strategies and benchmarks, see this summary.

Part of the boost to foreign assets is the ongoing weakness in the US dollar (a positive factor for assets denominated in foreign currencies from a US investor’s perspective). The Invesco DB US Dollar Index Bullish Fund (UUP) fell 1.0% this week and looks set to test its previous lows set in August.

US assets overall either lost ground or posted relative mediocre results. The biggest setback on the global stage this week: US Treasuries via iShares 7-10 Year Treasury Bonds (IEF), which slumped 0.7%, which left the fund close to a four-month low. Not surprisingly, IEF’s MOM rank remains weak at 40 (vs. 0, the lowest possible momentum score).

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William K. 9 months ago Member's comment

Quite an interesting analysis of what is happening elsewhere around the world, at least some parts of it. Certainly diversification makes sense as far as reducing sector crunches and crashes, but it usually means a bit less profit except during quite good times. Presently the impression is "good times" but not "Great Times". And unfortunately a fair portion of the drive seems to be based on the weakness of the US dollar.

Adam Reynolds 9 months ago Member's comment

Good read, thanks.