November 26, 2019 glacierinvest

Sometimes you have to see, read and/or hear something multiple times before it actually sinks in. This is one of those cases for me. I’ve written extensively about the benefits of diversification in this blog and have been a huge advocate of international diversification for myself and for my clients. I read this piece yesterday and I need to revisit my thesis on the matter and do additional analysis and testing.

The gist of the write-up is that the U.S. and International equities are much more highly correlated in the past 10-20 years than they were previously, negating much of the benefit from diversifying internationally. Additionally, international stocks tend to be more volatile making matters even worse from a risk-adjusted perspective. The author cites two potential reasons, globalization and technology, for the increase in correlation. He wonders if these trends will reverse any time soon. It’s hard to say with globalization given the protectionist mentalities that are becoming more and more pervasive. For now, it doesn’t appear the technology situation will be changing any time soon. Regardless, I wonder if there’s an international equity allocation that makes sense?