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Foler

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sliverstorm said:
Short answer: Confirmed! Sell it.

Long answer: Let's talk international markets!

Way back when the dinosaurs roamed, there was a theory that holding international made sense as a hedge against the US dollar and US monetary policy. The past 25 years or so has not borne that thesis out.

IXUS has a lot of exposure to large international corporations with a global customer base. Meaning it has substantial exposure to the US market and US monetary policy, which itself is ALSO made up of large international corporations with a global customer base (Apple vs Samsung, Nvidia vs TSM, Eli Lily vs Novartis, Tesla vs. Toyota, Exxon vs. Shell, P&G vs Unilever, etc etc etc--admittedly, the weights are heavier in S&P, but the concept holds). So what is this hedge really doing?

Let's do the sniff test first. Doesn't seem to be insulated from any macro declines:
View attachment 512685

However, a hedge still has value if it falls but falls less (or grows more) than the thing it is hedging against, so let's look at every year IXUS outperformed FXAIX over the last decade-ish and see what you 'saved' due to the hedge:
View attachment 512684

Not very impressive. Note that down year in 2018, where IXUS lost more vs. FXAIX than it saved in sum over a decade. So it isn't even a reliable hedge against short-term adverse conditions. And to get that spotty hedge above, you had to give up something like +250% returns over the last 10 years.

True EM (not EM like... China EM) might do better as a hedge due to their differing industry mix and reach, but understand that the thing you're hedging against in that case isn't really the US dollar, it's global market exposure. And hedging the risks also means hedging the benefits.

For me, the US market is sufficiently diverse, and my belief is that (as above) domestic gains in the long term will outweigh any international short-term 'shock absorption' capabilities.

Side note, I'm not sure if you meant to use bp as in basis points, which are 1/100th of a percentage point.
Click to expand...
Wow thanks for the detailed analysis. This is great. You poked some holes I didn’t see. From my amateur research most advocates for holding international cite a period (can’t remember exact) of maybe 1970-90 where it did better and then say “can you predict that US will always do better?”.

It seems like some trump card they use that completely neglects how the world has changed over the past 2-3 decades due to technology and globalization. It’s a bit frustrating because as an amateur investor it seems like there’s lots of these trump cards that are thrown around.

I think advocates of holding intl in some amount would say you are displaying “recency bias”. Is that a bad thing? A lot has changed in the last 3 decades..

Yeah whoops, I used bp wrong.

Im gonna take a minor loss and probably move out of these positions and throw them all into FXAIX. Appreciate you taking time on a Saturday morning to break this down.
 
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Foler

The_Black_Log Foler

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From a bogleheads thread, and this cracks me up because why should I trust that vanguard has my interests at heart over their fund managers?
Vanguard seems to have high hopes for international over the long term as they have allocated more than 25% to international in all their target date funds 2025 and beyond.

I on the other hand am more pessimistic and as such, I’ve dropped my international allocation from 20% to 15% and moved them out of Roth accounts to tax deferred accounts
Click to expand...
 
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Sanrith Descartes

Sanrith Descartes

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sliverstorm said:
Short answer: Confirmed! Sell it.

Long answer: Let's talk international markets!

Way back when the dinosaurs roamed, there was a theory that holding international made sense as a hedge against the US dollar and US monetary policy. The past 25 years or so has not borne that thesis out.

IXUS has a lot of exposure to large international corporations with a global customer base. Meaning it has substantial exposure to the US market and US monetary policy, which itself is ALSO made up of large international corporations with a global customer base (Apple vs Samsung, Nvidia vs TSM, Eli Lily vs Novartis, Tesla vs. Toyota, Exxon vs. Shell, P&G vs Unilever, etc etc etc--admittedly, the weights are heavier in S&P, but the concept holds). So what is this hedge really doing?

Let's do the sniff test first. Doesn't seem to be insulated from any macro declines:
View attachment 512685

However, a hedge still has value if it falls but falls less (or grows more) than the thing it is hedging against, so let's look at every year IXUS outperformed FXAIX over the last decade-ish and see what you 'saved' due to the hedge:
View attachment 512684

Not very impressive. Note that down year in 2018, where IXUS lost more vs. FXAIX than it saved in sum over a decade. So it isn't even a reliable hedge against short-term adverse conditions. And to get that spotty hedge above, you had to give up something like +250% returns over the last 10 years.

True EM (not EM like... China EM) might do better as a hedge due to their differing industry mix and reach, but understand that the thing you're hedging against in that case isn't really the US dollar, it's global market exposure. And hedging the risks also means hedging the benefits.

For me, the US market is sufficiently diverse, and my belief is that (as above) domestic gains in the long term will outweigh any international short-term 'shock absorption' capabilities.

Side note, I'm not sure if you meant to use bp as in basis points, which are 1/100th of a percentage point.
Click to expand...
Not commenting on the actual validity of the data, but thank you for the well thought out presentation. It beats "IXUS suxxor".

gloria bell GIF by A24
 
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Tmac

Tmac

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sliverstorm said:
Short answer: Confirmed! Sell it.

Long answer: Let's talk international markets!

Way back when the dinosaurs roamed, there was a theory that holding international made sense as a hedge against the US dollar and US monetary policy. The past 25 years or so has not borne that thesis out.

IXUS has a lot of exposure to large international corporations with a global customer base. Meaning it has substantial exposure to the US market and US monetary policy, which itself is ALSO made up of large international corporations with a global customer base (Apple vs Samsung, Nvidia vs TSM, Eli Lily vs Novartis, Tesla vs. Toyota, Exxon vs. Shell, P&G vs Unilever, etc etc etc--admittedly, the weights are heavier in S&P, but the concept holds). So what is this hedge really doing?

Let's do the sniff test first. Doesn't seem to be insulated from any macro declines:
View attachment 512685

However, a hedge still has value if it falls but falls less (or grows more) than the thing it is hedging against, so let's look at every year IXUS outperformed FXAIX over the last decade-ish and see what you 'saved' due to the hedge:
View attachment 512684

Not very impressive. Note that down year in 2018, where IXUS lost more vs. FXAIX than it saved in sum over a decade. So it isn't even a reliable hedge against short-term adverse conditions. And to get that spotty hedge above, you had to give up something like +250% returns over the last 10 years.

True EM (not EM like... China EM) might do better as a hedge due to their differing industry mix and reach, but understand that the thing you're hedging against in that case isn't really the US dollar, it's global market exposure. And hedging the risks also means hedging the benefits.

For me, the US market is sufficiently diverse, and my belief is that (as above) domestic gains in the long term will outweigh any international short-term 'shock absorption' capabilities.

Side note, I'm not sure if you meant to use bp as in basis points, which are 1/100th of a percentage point.
Click to expand...

Everyone welcome Mr. Chat GPT to the thread 👏🏼
 
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sliverstorm

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Foler said:
From my amateur research most advocates for holding international cite a period (can’t remember exact) of maybe 1970-90 where it did better and then say “can you predict that US will always do better?”.

...

I think advocates of holding intl in some amount would say you are displaying “recency bias”. Is that a bad thing? A lot has changed in the last 3 decades..
Click to expand...
I wanted to address this because I think it's a fair criticism.

Let me say I'm also an amateur--I'm not drawing a salary from investing and I work full time in a non-related field. I learned most of what I know in college and at that time made the decision that I didn't have the aptitude or appetite to learn to be an active investor, so I spent a chunk of time figuring out what my passive strategy was going to be. That ended up boiling down to "USA has the best environment for business and big winners are the best at future winning", which S&P 500 does a pretty good job of representing.

Back to the question, I googled around to try to find long-term yearly returns from a single source. I ended up with Curvo.eu, which looked like it was 'close enough' to the official indices for what I wanted to grab. Let's use that to compare MSCI USA vs. MSCI World.

MSCI World is basically USA + rest of the world developed markets. Today, the USA makes up 70% of that bucket, so it's functionally like an international hedge in developed countries. This isn't quite what IXUS is, but we'll get there:
1706982974474.png


Do international markets ever outperform domestic? Sure! Look at those awesome streaks in the late 80s and the 2000s:
1706984083383.png


But now let's think like a long-term investor: if my time horizon is 30 years or 20 years, can I string together ANY long-term compounding period of time where my portfolio was improved by having international developed market exposure?

Answer: Nope. Not even one time. Here's 30-years:
1707055292984.png


Here's 20 years:
1707055329790.png


Take a look at that wealth lost column--your investment in year 1 is worth anywhere from 25% less to 60% less by being a third into international developed. Framing it the other way around, US-only generated anywhere from a 33% to 250% better return.

Now, I mentioned Emerging Markets before, and I want to give them their due. I only found MSCI Emerging Markets data from 1988, but let's do the same exercise. Here's the annual:
1706986749389.png


Here's 30-year:
1707055363377.png


Here's 20-year:
1707055421460.png


Not such a clear cut story anymore! The last decade hasn't been great for EM, but I think there's an argument to be had for diversifying in that direction. For me, I want to own something that I understand and value intrinsically as an asset. That's a stake in domestic, large cap companies. I don't see anything in data that suggests international developed has anything to offer, but I think plenty of people could make a fair case for EM being a useful asset.

From what I read this morning, IXUS is a combo of developed/emerging with a weighting that biases towards developed. If you wanted the pure EM exposure, I think there are better ways to get it.

Edit: Formula error
 
Last edited:
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Lambourne

Lambourne

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sliverstorm said:
I wanted to address this because I think it's a fair criticism.

Let me say I'm also an amateur--I'm not drawing a salary from investing and I work full time in a non-related field. I learned most of what I know in college and at that time made the decision that I didn't have the aptitude or appetite to learn to be an active investor, so I spent a chunk of time figuring out what my passive strategy was going to be. That ended up boiling down to "USA has the best environment for business and big winners are the best at future winning", which S&P 500 does a pretty good job of representing.

Back to the question, I googled around to try to find long-term yearly returns from a single source. I ended up with Curvo.eu, which looked like it was 'close enough' to the official indices for what I wanted to grab. Let's use that to compare MSCI USA vs. MSCI World.

MSCI World is basically USA + rest of the world developed markets. Today, the USA makes up 70% of that bucket, so it's functionally like an international hedge in developed countries. This isn't quite what IXUS is, but we'll get there:
View attachment 512705

Do international markets ever outperform domestic? Sure! Look at those awesome streaks in the late 80s and the 2000s:
View attachment 512708

But now let's think like a long-term investor: if my time horizon is 30 years or 20 years, can I string together ANY long-term compounding period of time where my portfolio was improved by having international developed market exposure?

Answer: Nope. Not even one time. Here's 30-years:
View attachment 512728

Here's 20 years:
View attachment 512729

Take a look at that wealth lost column--your investment in year 1 is worth anywhere from 25% less to 60% less by being a third into international developed. Framing it the other way around, US-only generated anywhere from a 33% to 250% better return.

Now, I mentioned Emerging Markets before, and I want to give them their due. I only found MSCI Emerging Markets data from 1988, but let's do the same exercise. Here's the annual:
View attachment 512716

Here's 30-year:
View attachment 512730

Here's 20-year:
View attachment 512731

Not such a clear cut story anymore! The last decade hasn't been great for EM, but I think there's an argument to be had for diversifying in that direction. For me, I want to own something that I understand and value intrinsically as an asset. That's a stake in domestic, large cap companies. I don't see anything in data that suggests international developed has anything to offer, but I think plenty of people could make a fair case for EM being a useful asset.

From what I read this morning, IXUS is a combo of developed/emerging with a weighting that biases towards developed. If you wanted the pure EM exposure, I think there are better ways to get it.

Edit: Formula error
Click to expand...

Interesting data. There is an obvious downward trend in your 20 year USA vs World data though, which becomes all the more obvious once put in a chart.

Depending on how you draw your trend line (since you need to extrapolate to 2024 to decide where to put your dollars today) it could really go either way. Does the trend flatten out or does it cross below zero?
If you had used this dataset 10 years ago (only looking at the first half of the line where the downward trend is strongest) you'd almost certainly have come to that conclusion that the long term trend was towards world.

1707030420703.png
 
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sliverstorm

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Lambourne said:
Interesting data. There is an obvious downward trend in your 20 year USA vs World data though, which becomes all the more obvious once put in a chart.

Depending on how you draw your trend line (since you need to extrapolate to 2024 to decide where to put your dollars today) it could really go either way. Does the trend flatten out or does it cross below zero?
If you had used this dataset 10 years ago (only looking at the first half of the line where the downward trend is strongest) you'd almost certainly have come to that conclusion that the long term trend was towards world.

View attachment 512781
Click to expand...
You're not wrong about the data, but I'd be cautious about trending the nominal % gap. The size of the gap you're seeing is really more about how much overall gain the markets experienced in the 20 year span.

Compare starting in 1980 to 1995 from the 20 year chart--Nominally, one shows a 1124 gap and one shows a 273 gap, but in both cases World grew 41% less than USA. The reason for the difference in hindsight is that the 80s and 90s were great decades while starting in 1995 swallows the entire dotcom crash and the financial crisis.

Using your same chart but with the more normalized measure of % growth of World over USA, which is the rightmost column on the chart in the last post, we can see there's maybe a slight trend, but much less pronounced and probably not something I'd put money on crossing zero given the last 10 years (the next year in this chart would be -28%):
1707056082595.png


But you never know--like you said, it's all future expectations, which is more or less what hedging is all about in the first place. Maybe Quantum Computing Bitcoin Inc. or one of Peter F. Hamilton's monopolistic teleportation travel companies gets established in Japan or something and fucks everything up.

I'm pretty sure this is anonymous, so here's the google sheets raw data if you want to tool around further:
MSCI.xlsx
 
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Gravel

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I like how you can completely fail at your job and then demand 10-12% raises for the next 4 years.
 
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Creslin

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Gravel said:
I like how you can completely fail at your job and then demand 10-12% raises for the next 4 years.
Click to expand...
Wasn’t it the engineers and project leadership who totally failed in like all these cases and not the machinists. 40% is a laughable ask but I also don’t blame these guys cause Boeings software kept mixing up up and down.
 
Daidraco

Daidraco

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Anyone have a good run down, youtube video of getting started in FOREX stuff? Just want to piddle around with one or two thousand and see if I can do anything worth my time starting with just that.
 
ToeMissile

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Creslin said:
Wasn’t it the engineers and project leadership who totally failed in like all these cases and not the machinists. 40% is a laughable ask but I also don’t blame these guys cause Boeings software kept mixing up up and down.
Click to expand...
How much is contracted out to other companies?
Also, what’s the environment and what kind of bullshit is getting rolled from the top down to the shop floor?
 
Gravel

Gravel

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Creslin said:
Wasn’t it the engineers and project leadership who totally failed in like all these cases and not the machinists. 40% is a laughable ask but I also don’t blame these guys cause Boeings software kept mixing up up and down.
Click to expand...
It said the machinists and aerospace workers union. I just assumed it was more than just machinists.
 
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Creslin

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Gravel said:
It said the machinists and aerospace workers union. I just assumed it was more than just machinists.
Click to expand...
ya maybe honestly I am not 100% sure but I would be shocked if their actual engineers are union. I would imagine the actual fuckups are with like the engineering fellows cause it was stuff so core to the design I can't imagine it was just low level employee shoddy-ness.
 
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Foler

The_Black_Log Foler

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Borzak said:
IMG_3718_jpeg-3120465.JPG
Click to expand...
yeah snap just laid off 10% of their workforce. Tech layoffs still in full force. I don’t even bother to link them to my software eng buds anymore because it’s just another day in tech.

Snap has been really popular the past few years for high TC software jobs. I think I’ve observed that die off over last 6 months in tech community
 
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