An Update on International Markets as the World Reopens

June 18, 2021
By Tim Courtney, Chief Investment Officer

Historically, international stock markets have had very similar returns to U.S. stock markets. From 1970 through mid-2014, the MSCI EAFE Index returned 10% while the S&P 500 Index returned 10.5%. However, more recent returns have clearly favored the U.S. as from mid-2014 through the end of 2020 the U.S. outperformed 12.8% to 4.5% annualized.1

It wasn’t just international stocks though that underperformed U.S. broad markets during this period. U.S. small-cap stocks, value stocks and cyclical sectors (financials, industrials and materials/energy), as well as real estate investment trusts (REITs) all underperformed.2 Strong S&P 500 returns were primarily driven by a handful of what would become the largest companies in the index, like Amazon, Apple, Alphabet, Microsoft and Netflix.3

One reason international markets underperformed is that, outside of a few companies in China, international indexes lacked these industry leaders. This trend continued and accelerated into the pandemic. While many of tech and communication companies fared well during lockdowns, economically sensitive sectors (which are a larger part of international markets) were harder hit and slower to recover.4

However, we are beginning to see positive signs in international markets as the world economy reopens. Economic numbers overseas are still undoubtedly weak, but just as U.S. markets began to surge in mid-2020 well before widespread vaccinations and a recovery was evident, international markets may be beginning to signal the nearing global recovery. Since November of last year, the MSCI EAFE has outperformed the S&P 500.5

As we’ve noted before, these markets tend to be trading at cheaper prices than U.S. comparables and they do provide diversification benefits and a U.S. dollar risk hedge, although they also have tended to be slightly more volatile in dollar terms than U.S. markets.6

We’re continuing to look at international companies and incorporating what we see as opportunities into our strategies. If you have any questions, please contact your Exencial advisor.


1. DFA Returns 2.0 (12/31/20) — MSCI EAFE Index Gross Dividends USD
2. DFA Returns 2.0 (12/31/20) — Russell 2000 TR Index, Russell 1000 Value TR Index, Dow Jones US Select REIT Index
3. U.S. News & World Report (12/2/19) — Decade in review: ‘Big tech’ gains enormous power
4. S&P Global (1/4/21) — Driven by big tech’s pandemic gains, S&P 500’s 2020 surge masks uneven recovery
5. Morningstar (6/17/21) — MSCI EAFE Gross Dividends USD Index, S&P 500 TR Index
6. Investopedia (4/9/21) — Playing it safe in foreign stock markets

The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities. There is over USD 9.9 trillion indexed or benchmarked to the index, with indexed assets comprising approximately USD 3.4 trillion of this total. The index includes 500 leading companies and covers approximately 80% of available market capitalization.

The MSCI EAFE Index is an equity index which captures large and mid cap representation across 21 Developed Markets countries* around the world, excluding the US and Canada. With 844 constituents, the index covers approximately 85% of the free float adjusted market capitalization in each country.

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