Same Old Performance Chase

I keep up to speed with fund flows – specifically ETF flows – because I think they give me a good sense of what my colleagues in the profession are doing and how investors are feeling about various asset classes / investment themes on a general basis. In the last month, it would appear that they have finally rediscovered the potential for international equities.

If you’re a regular investor, of course, the trick is to find an advisor who talks you into this sort of thing before it becomes cool and popular, not afterwards. That’s where the gains are. Easier said than done. Advisors who are afraid to lose clients can never fully do what needs to be done for their clients. And advisors without a fully fleshed out investment process can easily find themselves adrift, flitting between this popular idea and that in a vain attempt to mollify the most outspoken among their accounts.

Vanguard estimates that the typical investor is holding an 80% allocation to US stocks in the equity portion of his or her portfolio, which means the typical investor is substantially underweight international stocks, as they make up about 50% of the world’s total equity market cap. A truly representative portfolio would be 50% US and 50% ex-US. In January, we went beyond that and actually underweighted US stocks, as I discuss here. It was not an easy trade to make at the time, given the way the recency bias influences us and messes with all of our minds – why buy anything other than the S&P 500?  

But May flows offer a sign that attitudes are changing. Global stock ETFs are seeing inbound money flows that are significantly greater than US ETF flows. State Street Global Advisors illustrates what has just happened in May:

As mentioned above, $10 billion was deposited into equities over the last five days, and US focused funds were the beneficiary of 99% of that total. Regardless, flows for US funds were still negative for May. Even as positivity abounded with earnings season drawing closer to its end, a season that resulted in a 4.9% increase in Q1 earnings per share growth relative to the consensus analyst estimates at the start of the quarter. The S&P 500 also notched its 19th and 20th new all-time high over that period. So, while FANG may be the acronym du jour, it may just be the FOMO (fear of missing out) that had propelled such a seismic shift in flow totals over the last week.

But May flows are not a US story; rather the protagonist comes from across the pond. International exposures have been all the rage in 2017, taking in over $60 billion to date, or essentially half of the year’s totals for the equity category, even though those funds only equate to just 26% of overall assets. But the real story is where on the international scale those flows are going. Europe has been of interest, with over $9 billion deposited in just the last three months alone. And this extends beyond just ETFs. Per Morningstar, emerging market focused ETFs and mutual funds have recorded inflows for 21 consecutive weeks – their best run since 2012 when they eclipsed 25 straight weeks.

The outlook for emerging markets, where valuations are attractive and ‘greenshoots’ of growth are visible, suggests this streak may continue, as even the latest political scandal in Brazil did not slow this trend.

Now, you might be saying, “gee, I wonder why this is happening all of a sudden!”

Let me alleviate your concerns that something about the human psyche may have dramatically changed overnight. It hasn’t. The same old performance chase is now at work. Animal spirits are shifting their focus from the S&P 500 to Europe, Japan and the Emerging Markets, where the gains are becoming larger and more rapid. Same thing we always see.

Have a look at that YTD column, with international stocks blowing the doors off US large caps and (especially) small caps:

Never changes.


The Uncertainty Principle
State Street SPDRs – May 31st 2017

Read Also:

What We’re Telling Clients About European Stocks (TRB)


This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here:

Please see disclosures here.

What's been said:

Discussions found on the web
  1. Bitcoin Evolution Review commented on Sep 21

    … [Trackback]

    […] Read More on that Topic: […]

  2. Electricity Rates commented on Sep 23

    … [Trackback]

    […] Find More on that Topic: […]

  3. is bitcoin loophole legit? commented on Sep 27

    … [Trackback]

    […] Find More on on that Topic: […]

  4. Buy guns online commented on Oct 09

    … [Trackback]

    […] Read More here on that Topic: […]

  5. tangerine bank canada sign in commented on Nov 06

    … [Trackback]

    […] Here you will find 51642 additional Info on that Topic: […]

  6. 먹튀검증놀이터 commented on Nov 07

    … [Trackback]

    […] Read More Info here to that Topic: […]

  7. Devops consultants commented on Nov 18

    … [Trackback]

    […] Here you will find 2056 more Info to that Topic: […]

  8. long blue wig commented on Nov 28

    … [Trackback]

    […] Read More on that Topic: […]

  9. td login canada commented on Dec 20

    … [Trackback]

    […] Find More on that Topic: […]

  10. Nikon fe2 manuals commented on Jan 21

    … [Trackback]

    […] Information to that Topic: […]

  11. bnc online commented on Jan 23

    … [Trackback]

    […] Here you will find 98974 additional Information on that Topic: […]