What I Learned This Week

The case for rebalancing portfolios toward emerging markets strengthens: “[You] don’t need anything great to happen. You just need a lot of bad things not to happen.”

So said GMO’s John Thorndike in a recent Fortune article, and it resonated strongly with us. In WILTW July 12, 2018, we argued that with the MSCI EAFE Index trading near a five-decade low relative to the U.S. market, it is not only wise but prudent to reallocate to less-crowded markets in the global economy. As emerging markets continued to sell-off going into the autumn—on fears of continuing U.S. interest-rate hikes attracting capital from overseas, combined with the damaging effects of the trade war on EM economies—the rationale behind rebalancing portfolios in favor non-U.S. markets has only gotten stronger. The following chart shows that the MSCI World Index ETF (ACWI) is trying to lift…

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