Domestic Equities currently hold the number one spot in the Nasdaq Dorsey Wright Dynamic Asset Level Investing (DALI) tool and populate the upper echelon of the Asset Class Group Scores (ACGS) page, confirming the technical strength/leadership from that group. Contrarily, international equities currently rank dead last in DALI and cluster behind most domestic equity representatives on the ACGS page, suggesting general weakness. We also note substantial year-to-date (YTD) price dispersion between popular benchmarks like SPX, EFA, or EEM; however, there is a potential flaw with this rather binary conclusion — we are predominantly, if not exclusively, examining large, cap-weighted indexes.
Below we have a chart of the rolling 2020 YTD price return (12/31/2019 -10/28/2020) for the MSCI ACWI ex USA Equal Weight Index and S&P 500 Equal Weighted Index. Perhaps to some surprise, we actually see a competitive showing on the year. In fact, the most recent reading tells us that the average international stock is down -6.43% while the average US stock is down -7.61%. Similarly, if we look at the Nasdaq Global Index NQGI and take the top 3,000 stocks by market capitalization, international names account(ed) for 47% of the top 100 performing stocks through Q3 of 2020.
Perhaps a takeaway from the above: despite the underperformance of international indexes, active investors can find plenty of opportunities in the space using momentum. See our Q3 2020 performance review for more on this. Moreover, as shown in a year like 2020 avoiding the losers can be just as important as owning the winners.
The returns above are price returns, not inclusive of dividends. The returns above are not inclusive of transaction costs. Investors cannot invest directly in an index or a model portfolio. Indexes and models have no fees. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss. The relative strength strategy is not a guarantee. There are risks inherent in international investments, which may make such investments unsuitable for certain clients. These include, for example, economic, political, currency exchange, rate fluctuations, and limited availability of information on international securities.
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Dorsey, Wright & Associates, LLC, a Nasdaq Company, is a registered investment advisory firm. Registration does not imply any level of skill or training.
The Dorsey Wright Sector Indexes are non-investable, equal weighted baskets of stocks including the largest and most liquid names from within each sector. The indexes are rebalanced daily and do not include the reinvestment of dividends. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss.
Unless otherwise stated, the performance information included in this article does not include dividends or all potential transaction costs. Investors cannot invest directly in an index. Indexes have no fees. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss.
Nothing contained within the article should be construed as an offer to sell or the solicitation of an offer to buy any security. This article does not attempt to examine all the facts and circumstances which may be relevant to any company, industry or security mentioned herein. We are not soliciting any action based on this article. It is for the general information of and does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any analysis, advice or recommendation (express or implied), investors should consider whether the security or strategy in question is suitable for their particular circumstances and, if necessary, seek professional advice.
Dorsey Wright’s relative strength strategy is not a guarantee. There may be times when all assets are unfavorable and depreciate in value. Relative Strength is a measure of price momentum based on historical price activity. Relative Strength is not predictive and there is no assurance that forecasts based on relative strength can be relied upon to be successful or outperform any index, asset, or strategy.