See chart below
- The chart shown above was provided by T. Rowe Price in a recent investment theme paper.
- T. Rowe Price notes that some investors may be questioning the need for international investments in their portfolios considering the U.S. stock market has consistently outperformed foreign markets over the past nine years.
- They note that out/under performance of the U.S. stock market compared to developed foreign equity markets tends to run in cycles. The current cycle of U.S. stock market outperformance over developed foreign markets is the longest period in the last 40+ years.
- We are firm believers that many types of investments, investment products, segments of the market, etc. tend to move in cycles.
- Unfortunately, this commonly causes investors to abandon investments that have not necessarily “been working” (i.e. performing well vs. other areas) in the short- to intermediate-term and instead invest in areas of the market that have been performing well. This is a behavioral bias referred to as “recency bias.” This bias reflects the belief that whatever has happened in the recent past will continue to work in the future.
- At Entasis, we believe investors should hold a diversified portfolio of investments for the long-term. However, we will commonly invest in areas of the market and with investment managers that have struggled in the near-term, with the expectation of a “turn” in results. A significant amount of research needs to be performed in advance of those decisions, but we often find underperformance to precede purchases as opposed to sales.