Many U.S. investors are understandably reluctant to invest in international companies. But I think they are missing an important opportunity.
The most common international asset class is large-cap blend stocks, roughly equivalent to the Standard & Poor’s 500 Index SPX, +0.29% in the U.S. International large-cap blend stocks are represented by an index called EAFE, which stands for Europe, Australasia and Far East.
The S&P 500 holds the blue-chip companies of the U.S., and EAFE represents the blue-chip companies of the rest of the world.
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Quite often, these indexes move up and down together. But just as often, one outperforms the other. Last year, 2014, EAFE lost 5.7%, while the S&P 500 gained 13.5%. Yet In 2015 through April 9, EAFE was up 8%, producing four times the 2% gain of the S&P 500.
Over the past 45 years, from 1970 through 2014, EAFE compounded at 9.7%, compared with 10.5% for the S&P 500. At those rates, a $100 initial investment would have grown to $6,405 in EAFE and to $8,845 in the S&P 500.
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