Sticking with a global lineup

Like most parents, my wife and I try to teach our kids life lessons. Sometimes these are the banal (clean your room) and other times they are “character building” sessions. We spend the time and effort teaching our children because we care deeply for them and hope they can learn from us without suffering from the same mistakes we might have made in our childhood.

However, as any parent can attest, there are times when our children teach us lessons and remind us of our challenges. Most recently, this came in the form of my son’s first foray into fantasy baseball. It reminded me of how investors should be patient when considering their international allocations.

Let me explain.

My son shares my deep love of baseball. He loves to watch it, he loves to talk it and, mostly, he loves to play catcher. Like most catchers, he loves Buster Posey of the San Francisco Giants. He can tell you Posey won National League Rookie of the Year when the Giants won their first World Series since moving to the west coast. He can tell you how after a truly horrific injury in 2011 Posey came back to win both the National League Comeback Player of the Year and National League Most Valuable Player as the Giants won their second west coast based World Series. Finally, he can tell you all the reasons he selected Buster Posey as his first pick in his first-ever fantasy baseball draft.

What he can’t quite explain, however, is how disappointed he was when Posey started this season in a bit of a slump. Now don’t worry, as I write this article Buster seems to have turned things around and is on his way to another great season. But you see, until my son checked box scores every morning, he had never fully appreciated how hitters could go into slumps or just succumb to the law of averages. He didn’t see “news” everyday so he didn’t always have the patience or perspective that a long baseball season requires.

To me, this is a lot like investing in international markets. Despite the fact that over longer periods of time it has made sense to invest internationally, many investors have recently been struggling to maintain their allocation. This is an understandable concern – but also likely an irrational one.

In fact, as the chart shows, over the last 10 years Non-U.S. equity markets1 have led U.S. equity markets2 by a full 100 basis points (1%).

Non-U.S. led over ten years

Annualized return numbers as of March 31, 2013.

Furthermore, during that time we have seen continued leadership reversal between U.S. and Non-U.S. Developed equities.

Continued leadership reversal

Indexes are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment.

This means that not only is it difficult to time when to increase/decrease international weightings, but it is also a largely fruitless labor.

What we perceive as a trend based on the latest “news” might not be the best way to manage a portfolio. After all, the Giants didn’t pull Posey from the lineup as he worked through his slump. Instead, they kept him on the field and trusted their decision that he was the long-term solution. In the same way, investors would be wise to consider trusting their allocation decisions made in better times when they were less emotional and weren’t concerned with the latest European banking system crisis.

Ultimately, they may find staying the course to be best for their long-term financial goals. If only my Rangers could do the same with their prospects!

1 Represented by Russell Developed ex-U.S. Large Cap Index

2 Represented by Russell 3000® Index

Major League Baseball, World Series, National League, and the names designating the Major League Baseball clubs and entities are trademarks or service marks of Major League Baseball Properties, Inc.; all are used in this presentation for illustrative purposes only.

The San Francisco Giants is a Major League Baseball (MLB) franchise based in San Francisco, California; the team is a member of the West Division of the National League (NL) in the MLB.

Russell Developed ex-U.S. Large Cap Index: Offers investors access to the large-cap segment of the developed equity universe, excluding securities classified in the U.S., representing approximately 40% of the global equity market. This index includes the largest securities in the Russell Developed ex-U.S. Index.

Russell 3000® Index: Index measures the performance of the largest 3000 U.S. companies representing approximately 98% of the investable U.S. equity market.

Indexes are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment.

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