Homepage / Investment / An overlooked, gutsy way for investors to make huge returns
These tech stocks — including Skyworks, Qualcomm — have the most to gain on a US-China trade truce Snap shares rise after prominent bearish analyst says the worst may be over Apple shares to struggle over the next 12 months on weak iPhone X demand, Instinet says Zuckerberg's meeting with EU officials will now be livestreamed following criticism As consumer staples get slammed, one name looks primed for a breakout, Piper Jaffray says China reportedly considers scrapping two-child limit per family Tesla shares to soar more than 80% on strong Model 3 profitability: Analyst US likely to slap tough oil sanctions on Venezuela — and that's a 'game changer' for Maduro Stocks making the biggest moves premarket: GOOGL, GE, MBFI, TSLA, FOXA & more Google seems to have removed most mentions of ‘Don’t be evil’ from its code of conduct Deadly virus identified as a potential epidemic kills nine in India This is the impact the Italian populist government could have on the euro As the payment wars heat up, PayPal could have a leg above Square FCC is investigating a website flaw that exposed mobile phone locations Microsoft buys a start-up that wants A.I. to make conversation with humans Malaysia sets up new 1MDB criminal taskforce The EU’s support for the Iran deal is ‘not sufficient,’ Tehran says London is a 'laundromat' for Russia's dirty money, UK report warns Be careful if China cuts you a check, says former US trade official Ryanair CEO says some airlines will not 'survive' the winter due to elevated oil prices China-style state-led growth won't work in Africa, former Nigeria finance minister warns Italy's next prime minister could be a mostly unknown law professor European markets seen higher as trade war concerns ease The Fed is an open book, but foreign trade and security are the wild cards Everything you need to know about a new EU data law called GDPR One in five 'initial coin offerings' may be frauds — but investors are bullish on them anyway China's space ambitions continue with reported launch of satellite to explore far side of the moon US-China trade developments are in focus for Asia markets The 2018 Hyundai Elantra GT Sport is a bargain hatchback that lacks performance How to record the screen on your Mac Tips from pro gamers on mastering Fortnite, the hottest game on the internet South Korea's LG Group chairman dies from illness at 73 South Korea, US to work closely on summit after Pyongyang's about-face EU could compensate firms hit by US sanctions over Iran – French minister Elon Musk teases new specifications for Tesla's embattled Model 3, calling it 'amazing' Virtual reality is finally ready for normal people, and the $200 Facebook Oculus Go is your ticket Social media was supposed to 'bring the world closer together.' Instead it's making us pettier A royal wedding, in pictures: Britain's Prince Harry marries Meghan Markle Tech investors take a Warren Buffett approach to raising money for blood cancer research Germany uses its past to try and police hate speech on Facebook Inside the training camp where Google shares its A.I. secrets with Alphabet-invested companies A longtime Google investor drew a simple chart on a napkin to explain everything in health tech Twitter CEO Jack Dorsey: Here are some surprising facts about the billionaire China lands bomber on South China Sea island for first time Prince Harry, Meghan Markle wed in Windsor as millions watch ISS sides against two Tesla directors, backs split of Musk's roles China says opening up of financial sector will need reciprocity iPhone app makers are forming a 'union' to demand improvements from Apple That Facebook royal wedding quiz? It could put you at risk for identity theft Banks will trade cryptocurrency sooner than people think, says fmr. JPMorgan blockchain executive Square stumbles into the banking business Amazon briefly hit session low after report that Trump pushed the USPS to double shipping rates Former Microsoft executive Qi Lu steps down as Baidu COO Netflix is reportedly turning the Michael Lewis book 'Flash Boys' into a movie Dell remains focused on a VMware merger, and now it's getting feedback from tracking stock holders CBS fight is 'the beginning of the end' of dual-share structures, says former NBCUniversal CEO Emerging markets are trading in correction territory — but some call the stocks a buy Bitcoin rally this week fails to materialize as New York conference brings more hype than substance Boeing’s antics at the World Trade Organisation risk a trade war Commodities are posting their best returns in a decade and Goldman thinks there's more to come US reportedly cancels B-52 bomber exercise with South Korea amid threats from North Korea Semiconductor company NXP jumps on report Qualcomm deal is 'looking more optimistic' Cell phones thrown in the trash are exploding, causing 5-alarm fires in garbage trucks Israel keeps Gazans ‘caged in a toxic slum,’ UN human rights chief says Netflix will nearly triple its subscriber base to 360 million by 2030: Bank of America Shares of Applied Materials, barometer for chip industry, drop the most in 9 years An ETF that made a big winning bet on bitcoin has now sold most of it David Tepper gets US approval to take activist stance on Allergan, if he wants it Putin, Merkel discuss U.S. withdrawal from Iran nuclear deal Putin favours status quo with new government lineup Grammy-winning Fugees founder bringing blockchain to your smartphone Square slips the day after PayPal-iZettle merger announcement Spotify subscribers to double to 150 million by 2020, Raymond James predicts Why PayPal bought a European start-up with IPO plans for $2.2 billion Amazon’s growing India business alone is likely worth more than all of Macy's Stocks making the biggest moves premarket: DE, CPB, AMAT, MAT, JWN, UAL, PYPL & more Energy stocks are on their longest winning streak in 12 years, and there's more room to run Cambridge Analytica files for bankruptcy in US following Facebook debacle Italy’s incoming government wants to lift Russia sanctions and rewrite EU rules AMD, Nvidia shares jump after Cowen says shares to soar on new growth markets Vietnam trade ministry says formally launched investigation into Uber-Grab merger Prince Charles to walk Meghan down the aisle at royal wedding Uber chief product officer to leave in latest executive departure Elon Musk says a ride on the Boring Company's tunnels beneath Los Angeles will cost $1 Ex-Russian spy Sergei Skripal discharged from UK hospital Egypt's Sisi orders Gaza border opened for Ramadan A floating Pacific island is in the works with its own government, cryptocurrency and 300 houses A ‘double whammy’ is staring Asian markets in the face this year China says it hasn't offered Trump a $200 billion trade surplus cut Bill Gates: Trump asked me the difference between HIV and HPV If it's America First, then Europe will respond in kind, German minister says AstraZeneca hit by falling Crestor sales, higher costs How Malaysia's new government could test ties with Singapore National Australia Bank CEO: 'As a banker, I am ashamed.' European markets seen mixed amid US-China trade news China's reported offer to slash trade deficit with US is about politics: Insead academic China drops US sorghum dumping probe amid signs of trade thaw It will be challenging for US and China to reach an agreement at trade talks, says strategist Crypto investor names his favorite — and least favorite — digital currencies President Trump meets China's Vice Premier Liu He on trade issues: Chinese state media

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.