International Stocks: The Tortoise to the S&P’s Hare in 1999

Chart of the Week for December 17-23, 1999

International equity markets have underperformed the US equity market over the past several years. However, investors who shun international diversification miss out on (1) return opportunities that cannot be predicted and (2) risk reduction. 1999 is a good example.

In the first two quarters of the year, the S&P 500 Index outperformed the MSCI Europe, Australia, and Far East (EAFE) Index of larger stocks in developed countries. In the third quarter, the environment favored international investments as the dollar weakened and European industry consolidation and corporate restructuring continued, but US investor confidence wobbled. While the US market regained footing in the fourth quarter, the EAFE Index remains ahead year to date because it did not have to recover from a big setback. Investors who have diversified with international equities have clearly been rewarded in 1999.

The point? No one, regardless of experience or analytical equipment, can consistently predict performance turning points, so jumping from asset class to asset class is out. Investors who have constructed well-diversified long-term portfolios accept that while they may not earn the absolute highest available return each quarter, they are positioned to benefit from various sectors of the market as they take the lead. Over the long term, this can enhance the consistency of return and help avoid large setbacks.

This illustration was compiled by information from outside sources. These companies are not affiliated with ICMA-RC. This information is being provided for educational purposes and is not intended to be construed as or relied upon as investment advice. ICMA-RC does not offer specific tax or legal advice. Individuals are advised to consider any new investment strategies carefully prior to implementing.

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The performance data quoted represents past performance. Past performance is no guarantee of future results. Investment returns and principal value will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data illustrated. For performance data current to the most recent month end, contact ICMA-RC Services, LLC by calling 800-669-7400 or by writing to 777 North Capitol Street, NE, Washington, DC 20002-4240. Para asistencia en Español llame al 800-669-8216. Performance data current to the most recent quarter end is available by visiting www.icmarc.org.