*by Kevin Slater, CEO, Lead Advisor, CFP®*

We recognize there are many great companies that are based outside the US and are therefore long-time investors in international equity markets. After a few years of allowing the international portion of portfolios to drift lower, we are rebalancing and bringing international equities up to approximately 35% of our overall equity allocation. For portfolios that are more growth-oriented, we are allocating 20-25% of that international equity to emerging markets.

We are not trying to time the market but rather strategically position portfolios for the long run. Most of the prognosticators we consult (JP Morgan, Vanguard, State Street, and others) suggest that over the next 10 years, non-US markets are likely to outperform the US. There are several reasons for this including relative prices, dividend yields, growth, and changes in currency.

Equity valuations (based on price-to-earnings ratio) are lower outside the US. This is to say, you can buy profitable companies more cheaply. The graph below shows the cost to buy $1 of profit in a public company over the past ten years. Prices are more expensive in the US than in developed or emerging markets with the gap between the US and developed markets widening substantially.

After a long run up against foreign currencies, the US dollar has started to drop which provides additional returns to US investors with international holdings. The graph below shows how the dollar has significantly strengthened since 2015.

We have already begun making these changes in portfolios. Please reach out if you have any questions.