Brett Sheely, Head of ETF Specialists at AllianceBernstein explains why global markets may offer more upside than U.S. stocks.
Transcript:
CAROLINE WOODS: Joining me now Brett Sheely, Head of ETF Specialists at AllianceBernstein. Brett, Thanks so much for joining me at the desk.
BRETT SHEELY: Thank you for having me today.
CAROLINE WOODS: So we have seen really impressive returns from US stocks. Fourth quarter is historically the strongest quarter of the year. And you’re telling us that we should be investing internationally. Make the case. Why should we be putting money abroad?
BRETT SHEELY: Well, you know, it’s been a really strong year for US stocks. It’s also been a very strong year for international equities. And so if I actually think about performance year to date, we see that international equities have been outperforming pretty sizably relative to the US equity market. Now the question really becomes, is it already baked in. And I think the answer to that is we don’t believe. So we believe there’s still room to run within international equities for many reasons.
CAROLINE WOODS: Looking out 12 to 24 months. What is your bull case for international stocks?
BRETT SHEELY: So I don’t have a number to give you. But what I can tell you is that there are a number of catalysts that are taking place right now that are unique to this period of time. And we still see those running forward. I’ll give you a couple examples. So if we think about, what’s occurring in Europe today, we see a number of catalysts right within the European markets for equities. One of those being for example defense spending. Right we see that NATO members are coming out and saying, OK, you know, we’ve been having to hit our 2% of GDP target for defense spending. Traditionally, we weren’t there, but since 2014, they’ve kind of doubled their defense spending. And they’re there. But now now they use coming out saying we actually want to hit more of like a 5% of GDP target for defense spending. That means additional stimulus being put into the market. So that’s one example. But even if I think about ECB. The ECB and rates we’ve seen that the ECB has really kind of led the US in terms of rate cuts. So they’ve brought, you know, their essentially their rate their lending rate down by half. Right in the past year. And now we just see the US start to kick up. You know pick up there. So between stimulus rate environment we really think there’s a number of different catalysts kind of promoting, international equity investing that’s specific to Europe.
CAROLINE WOODS: What about other international markets?
BRETT SHEELY: That’s a great question. So you know, I’ll give you another example. If we think about Japan. Right let’s take it to Asia. If we think about the Japanese market, you know, within Japan, we’ve actually seen a change in governance. Right and not to get to kind of in the weeds on this, but, you know, there were structures within Japanese investing where you saw companies sort of investing in each other. We’re seeing that start to go away. What does that mean. It means that there’s a more kind of market friendly, competitive environment in Japan within the Japanese equity market. Like that’s different. And if I think about also within APAC, China, right? A huge component of emerging market investing. You know, we see that the Trump administration and the Chinese government are coming together and thinking about how they can work out a deal there. I think that’s a kind of an open question, but sort of leading towards a Yes. At some point, we would expect that. So I think that there’s a number of catalysts outside Europe that are also supporting this.
CAROLINE WOODS: So the catalysts are there. But what if I’m an investor and I’m like, but you know, us big cap, large cap tech is doing so well. Why diversify if that’s maybe what I know and I’m more familiar with. So maybe speak to the importance of diversification, especially if the market does get choppy?
BRETT SHEELY: Yeah and I wouldn’t tell everyone to sell all their tech today. But I do think there’s more room for international equities today. And I think about diversification as a key point. Right you said the word I think you kind of nailed it on the head. If I look at the S&P 500 today, the 10% largest names within that index a count for like 40% of the S&P 500. If I look at the FA index, right. So non-north American companies and I look at the top 10 largest names within that index, it’s more like 10% to 15% of the index. Like there is just such concentration within US large cap equities today. And if anything that concentration is growing. It’s not reducing.
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