Homepage / Investment / An overlooked, gutsy way for investors to make huge returns
Google and Facebook are watching our every move online. It's time to make them stop Daymond John tells shy airline passenger: You should have talked to me on the plane South Korea says it has no plans to shut down cryptocurrency trading AMD shares surge as Wall Street analysts say the chipmaker is ‘executing on all fronts’ James Altucher, the face of bitcoin, says he’s happy about Facebook’s cryptocurrency ad ban Pending home sales eke out 0.5 percent gain in December as supply shrinks to record low Uber is testing bike sharing in San Francisco The real source of the internet's problems might be the advertising business Game publisher EA's sales forecast tops estimates, sending shares higher GE will likely be dropped from the Dow, Deutsche Bank predicts Samsung surpasses Intel as world's biggest chipmaker for the first time Apple could be the best of the bunch in this tech earnings avalanche The 9-year stock rally still has 'years left,' says one of Wall Street's most bullish strategists Apple: We would never degrade the iPhone experience to get users to buy new phones Bitcoin headed for biggest monthly drop since January 2015 with nearly $60 billion of value wiped off ADP boosts forecast as new tax law spurs demand China 'will open even wider to the UK,' says Prime Minister Li Keqiang Big market swings are something you’re going to have to get used to, says Wells Fargo The dollar keeps weakening. Is that good news for the world? Apple downgraded by BMO, expects iPhone maker to slash revenue forecast this week SoftBank buys majority stake in Japanese messaging giant Line’s mobile division Rising interest rates cause a 2.6% pullback in weekly mortgage applications Trump's State of the Union address 'less hard' than first feared in Asia Trump vows to protect US intellectual property, without naming China Blockchain technology to boost Microsoft earnings, trader says Fujifilm to take over Xerox and combine it into the joint venture Fuji Xerox Samsung is making chips designed to mine cryptocurrencies like bitcoin There’s a risk of market turbulence, but it’s unlikely to hit until 2019, says Santander chairman We'll see up to a 15 percent correction in 2018, Swiss bank CEO says Japan's biggest messaging app Line is planning to launch a cryptocurrency exchange Quicksilver surfwear CEO missing at sea off the coast of France Venezuela says will pre-sell 'petro' cryptocurrency on Feb. 20 Nintendo ups its Switch sales expectations to 15 million units after profits rise 261% European markets seen mixed amid earnings and economic data The UK wants free trade with China. Beijing has its own goals Santander fourth-quarter net profit down 4 percent on US impairments The man who almost became ambassador to South Korea just warned about US plans for North Korea China's Leshi Internet flags $1.8 billion loss for 2017, citing conglomerate cash crunch South Korea says it uncovered about $600 million in cryptocurrency crimes Asia became less democratic in 2017 Al Gore's investment firm backs start-up created by Facebook co-founder Theresa May says she wants a free trade deal with China Chinese manufacturing weaker than expected in January Webpass is leaving Boston in latest sign of Google Fiber’s shrinking ambitions Samsung posts record fourth-quarter profit Asian shares look set for more declines as Wall Street sells off for a second day Don't count insurers out yet after Amazon-Berkshire-JP Morgan move Amazon's health care move could be a big win for consumer health start-ups Red Hat buys CoreOS, a start-up that sold tech developed by Google Here’s what Amazon told employees today about its landmark deal to deliver better health care Top official resigns after false missile alert in Hawaii Crazy odds: These online traders bet on the chaos of Washington and the Trump administration AMD falls despite beating Q4 estimates Facebook ban on bitcoin ads latest in very bad day for cryptocurrencies Indian man dies after being sucked into an MRI machine while carrying an oxygen cylinder Advice for Jeff Bezos, Warren Buffett and Jamie Dimon from a failed effort to control health costs Toys R Us poor holiday sales cast doubts on its future and could force renegotiation of loan terms The Apple sell-off is a buying opportunity into earnings, says trader Google partnership on mobile cloud services drives up MobileIron shares Facebook is banning all ads promoting cryptocurrencies — including bitcoin and ICOs Amazon's moves in health care over the last year are finally starting to make sense Buffett is getting a second chance to partner with Bezos after missing on Amazon as an investment How Pencils of Promise got a $1 million donation from an anonymous bitcoin multi-millionaire Amazon's home devices could be a key to cheaper health care, tech investor Roger McNamee says Two ex-Google engineers built an entirely different kind of self-driving car Cryptocurrencies join the global financial market sell-off as bitcoin drops 7% A travel agent is trying to charge fees for sunbeds Most of the tax cut windfall will boost buybacks and dividends, not workers' pockets, survey predicts The professor who wrote the book on making addictive technology is having second thoughts Trump's immigration policies are 'economic poison' that will cost taxpayers billions Airbnb trolls President Trump ahead of the State of the Union The iPhone X's $1,000 price tag scared everyone away Drop, a rewards app start-up, snags Airbnb's former head of engineering SEC halts one of the largest 'ICOs' ever as it wades deeper into the murky world of cryptocurrency offerings Passing on sanctions, Trump goes even softer on Russia than expected Buy insurers on dip as new initiative from Amazon, Berkshire and JP Morgan is ‘more bark than bite’: Analyst High schools stock up on Narcan to combat teen opioid crisis in US Apple will finally replace the fax machine in health care Apple is reportedly delaying new iOS features until next year because of quality problems Bond expert predicts a ‘wall of buying’ in Treasurys will protect the stock market Home prices surge to new high, up 6.2% in November Noted tech investor says the sector is not the best place to invest right now Sterling predicted to hit pre-Brexit vote level before the end of 2018 Stocks making the biggest moves premarket: AMZN, BRKB, JPM, AAPL, BX, TSLA & more Bitcoin boom to give AMD earnings a boost, says MKM Partners Apple shares fall again on another report of fading iPhone X demand Trump advisor Cohn: President to focus on $1.5 trillion infrastructure plan in State of the Union Why don't foreign investors take fright more often? The dollar is doing something it hasn’t done since 1987 UnitedHealth, CVS plunge on Bezos, Buffett and Dimon plan to improve U.S. health care Amazon, Berkshire and JPMorgan Chase to team in landmark new health care company Can earnings afford to slow down? 'Enemies of the USA': Russia slams America's list of oligarchs with ties to Putin The app that exposed the location of military bases with a heat map is reviewing its features For his next act, former Amex CEO Ken Chenault turns his focus on Silicon Valley Child experts: Just say ‘no’ to Facebook’s kids app Ryanair agrees to recognize British pilots union for first time Arab states are 'determined' to stick with reforms despite deepening 'frustration', IMF says The US 'oligarch list' is strikingly similar to Forbes’ richest Russians ranking Indian ride-hailing firm Ola expands to Australia to take on Uber

Investment

An overlooked, gutsy way for investors to make huge returns

It hasn’t gone unnoticed that 2017 was an exceptionally good year for overseas stock markets. Gains were recorded in virtually every country stock market in the world. Out of more than 120 stock markets I follow, only a few ended down in 2017. If only it could be that simple every year.

To expect the same kind of returns for 2018, you’d have to see a continuation of last year’s super winning streak across the globe. But there is another way to keep the overseas streak going that’s proven historically. You just have to be willing to take a deep dive into poorly performing international stock markets at seemingly terrible times.

I’m talking about a Dogs of the World strategy. It exists. I discovered it during my hunt to build an international contrarian stock market strategy. Historical data backs up the approach.

Last year was another one in which the strategy worked. Back in January 2017, the country stock market dogs were Turkey, Italy, Denmark, Ireland and Mexico. These were markets down anywhere from 7 percent to 10 percent in 2016. Here ‘s how they did for my Dogs of the World strategy in 2017:

  • Turkey: 37 percent
  • Denmark: 35 percent
  • Ireland: 29 percent
  • Italy: 29 percent
  • Mexico: 14 percent

In fact, if you were to invest in those five dog country ETFs at the very beginning of 2017, you would have made more than 29 percent for the year.

Everything has to be compared to a benchmark. Since my international dogs basket of five countries includes both developed and emerging market country ETFs, I thought it also would be wise to compare the returns to a 50/50 ETF blend of both the broad emerging markets (EEM) and broad developed markets ex-U.S. (EFA), and annually reset based on gains to maintain a 50/50 weighting. For 2017 that simple strategy would have returned about 31 percent, slightly beating out my strategy by 2 percent. But does this negate my strategy? No. In fact, in four of the past six years, my dogs strategy has beaten the broad indexes.

In the two years my strategy lost out to the broad benchmark, it was by relatively small amounts. When it beat the benchmarks, it was by relatively large amounts. And the overall average was handily above and beyond. Plus, in the two losing years, returns were still attractive compared to the blended benchmark.

On a cumulative basis, the bottom 5 reformulated every year compared to the two benchmarks individually, again beating EEM and EFA. So what’s the catch?

There’s no catch, but there is a footnote to the research: I don’t include every single country market for which there is an ETF. I follow most of the country ETFs, but for the global dogs strategy, I isolate approximately 50 single-country stock market indices that have corresponding iShares ETFs with at least a five-year trading history. Excluded markets include Qatar, UAE and Saudi Arabia. I also delete the country ETFs that are currency-hedged.

More from Global Investing Hot Spots:

China private fund assets hit staggering $1.63 trillion

Vanguard Group: There is now a 70 percent chance of correction

The last stock boom left that doesn’t make big bets on the internet

I back-test how I would have done if I invested in a range of global dog strategies — the 10-worst, five-worst, three-worst or single-worst country) in every year.

If you invested in the bottom five annual performers from the previous year — every year since going back to 2011 — the process was repeatable and delivered alpha over the averaged two standard international benchmarks.

In fact, if you had invested in only the second-to-worst country starting in 2011 — rather than the five worst — a $100,000 investment would turn into $378,000 (assuming reinvestment of the full amount each year over a five-year period through 2017). That was the biggest winner of all among potential Dogs of the World strategy options.

I decided to create a portfolio of the bottom five single countries because this selection outperformed the bottom 10, and one country, or even three countries, just isn’t enough for my taste when it comes to international diversification.

So here are the world’s worst markets in 2017 based on my research criteria, and keep in mind that in a year of “synchronized global growth,” the “worst” doesn’t look as bad as usual — in fact, all five countries generated healthy returns, just well below booming global benchmarks. These five countries generated a total return of 66 percent last year and an average return of 13 percent.

Creating a portfolio of 2017’s bottom five international markets takes us globetrotting to domiciles that are as controversial as ever. Here are a few important things to consider about the bottom five.

  1. Mexico: This one made an uncommon second-year-in-a-row appearance. We have a high murder rate, an election coming up that may bring about political instability, a very big energy sector, and President Trump continues to express his desire to rip up NAFTA.
  2. Canada: This country has a substantial energy sector that has suffered from low energy prices, has been subject to trading disputes with the United States in lumber and aircraft manufacturing, and President Trump continues to express his desire to rip up NAFTA.
  3. Russia: This one is the most controversial of the five. Between the independent counsel’s investigation into Russian meddling in the 2016 presidential election, economic penalties due to its invasion of Crimea and its energy-dependent economy, this is a tough one to invest in. Yet of the five global dogs, Russia has started 2018 with the strongest performance. As one of the world’s biggest energy exporters, if you believe energy prices are set to continue rising in 2018, this one should do well.
  4. Israel: Stuck in the middle of some of the world’s most hostile countries to it and the United States, this technologically advanced country over the long term has been a sound place to invest. However, due to geopolitical events, it is often subject to investor selling on fear of war.
  5. Indonesia: Southeast Asia’s biggest economy isn’t exactly doing poorly. It’s a bottom 5 country despite a near 20 percent gain last year. If you believe that materials and energy will do well in 2018, this could be a good pick. Oil, natural gas, rubber, plywood, tin and rice are just a few of the products it exports.

Yet there are a few things to keep in mind.

This strategy is based on back-testing. We all know — or should know — the classic investment performance caveat: Past performance is no guarantee of future results.

This strategy is deeply contrarian. This is for investors who have a high risk tolerance or for those who allocate only a small portion of their portfolio to it.

I think it works because investors sold their holdings in these markets when the news was bad, which translates into potential upside when investors realize these countries are probably not going to disappear. In other words, this is a gutsy way to go international, but it’s what I’ll do because I trust my work and because I feel it’s often best to go where others have left.

By Mitch Goldberg, president of ClientFirst Strategy

Source: Investment Cnbc
An overlooked, gutsy way for investors to make huge returns

Comments are closed.