Sunday, November 26, 2006

US vs World Markets

US investors sometimes are guilty of myopia when it comes to investing. That is a bad thing as there are many opportunities outside the US, but international/global funds are now attracting most of the new inflows to mutual funds. This is classic performance chasing by individual investors. Investing in international markets can reduce the volatility of your portfolio if those foreign markets are not correlated to US market performance (which most developed markets are), but investing by looking at last year's returns is usually a bad idea. In looking at the latest issue of the Economist over the weekend, something in their Economic and Financial Indicator section caught my eye.

In this list, the S&P 500 has outperformed only the Japanese market this year. And of course, Japan was up big last year.

Looking at emerging markets doesn't help much.

On this list, the S&P 500 underperformed all markets except Pakistan, South Korea (and presumably North Korea),Taiwan, Colombia, Egypt, Saudi Arabia, and Turkey.

I would not be surprised if this performance does not repeat next year. The market always seems to act in ways that frustrate the largest group of investors. With individuals throwing money at international and global funds, it seems like time to be a little myopic.

No comments: