As I communicated in my interim monthly communication via email and blog, the Brexit event was not the “market plunge” that the media made it out to be. For the month of June, the MSCI ACWI (remember that is All Country World Index, our primary benchmark) was down 0.72% and is up 1.36% for the year. The MSCI World Ex USA international stock index was down 3.19% in June, again hardly a “plunge”.
The biggest and shortest term effect has been in foreign currency exchange rates. The British pound and Euro have declined in value versus the U.S. dollar. A stronger dollar increases the costs to foreign buyers of U.S. exports and decreases the costs to U.S. buyers of foreign goods. This exacerbates the recent trend of a strong U.S. dollar reducing foreign investment returns. But a trip to Britain is now cheaper!
The longer term impact is potentially negative since it reflects a trend towards nationalism and less global free trade. Exactly how this will unfold remains to be seen.
T. Rowe Price recently published interesting research on the historic returns between U.S. stocks and international stocks. Since 1973, returns have cycled back and forth with the median time for either U.S. or international stocks to outperform each other ranging about 3 to 4 years and the longest period of outperformance of either asset class being 6.25 years. We have now past the longest time period for U.S. stocks to outperform international stocks. The pendulum will swing back for patient investors.
Should we make more changes more often in your portfolio? I have cited Warren Buffett in recent writings. His 2005 Annual Report to Shareholders referenced Isaac Newton’s three laws of motion and cited them as works of genius. To this Buffett added a Fourth Law of Motion: “For investors as a whole, returns decrease as motion increases.” The more changes one makes, the more one risks being wrong. Investing is contrarian!
We welcome Joanne Skinner to our staff as a part-time Client Service Assistant. We have grown over the years and are increasing our staff to continue to provide the best client service that we can. Joanne will be working 20 hours a week and we look forward to having her as part of our team.
Enjoy these summer days! As always, please contact us with any questions, news or comments.