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HomeMarketFor Contrarian Investors, There Are Opportunities Outside the U.S.

For Contrarian Investors, There Are Opportunities Outside the U.S.

The Houses of Parliament in London.

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Chris McGrath/Getty Images

Many investors see warning signs in the U.K. and beyond, but one firm sees opportunities.  

“Investors seem geographically myopic and unaware of a significant shift in the relative performance of some global markets,” Richard Bernstein Advisors in New York wrote in a recent research note. While investors wait for the U.S. technology, communications, and consumer discretionary sectors to rebound, “world stock market returns have become increasingly competitive to U.S. returns,” the note said. 

RBA, which manages more than $14 billion using global macro-based strategies and investing primarily in exchange-traded funds, notes that some non-U. S. markets have outperformed despite the strength of the U.S. dollar. The U.S. Dollar Index (ticker:
) is up nearly 11% this year. 

RBA said that if the U.S. dollar depreciates against other currencies during 2023, non-US investments—both stocks and bonds—could become even more attractive to U.S. investors. The
iShares MSCI ACWI ex U.S.
ETF (ACWX) has an indicated dividend yield—a forward-looking measure based on the sum of the dividends that are expected to be paid out over the next 12-month period—of about 3.6%, according to the report. If the U.S. dollar were to depreciate by 10%, that would imply non-US stocks would offer a dividend yield of about 4% to U.S. investors, it said.

Investors should also be looking for opportunities in the U.K., notwithstanding its economic and political woes, including double-digit inflation and a change in leadership with Rishi Sunak replacing Liz Truss as prime minister in October. RBA said that despite the turmoil in 2022, the U.K. stock market has “handily outperformed” the S&P 500 and Nasdaq Composite.

In U.S. dollar terms, the MSCI United Kingdom index is down about 6% over the one-year period through Nov. 15, compared with a loss of 28% for the Nasdaq Composite. “Yet, most investors seem totally unaware of this substantial difference,” the report said.

The sectors that play significant roles in the U.K. economy have a lot to do with the outperformance. While the worst-performing sectors globally and in the U.S. are technology, communications, and consumer discretionary, comprising nearly half of the U.S. market, those same sectors comprise only 10% of the U.K. market. The three largest sectors in the U.K. are consumer staples, financials, and energy, comprising more than 50% of the U.K. stock market, but less than 25% of the U.S. market, said RBA.

“The U.K.’s outperformance versus the U.S. has largely been a sector effect and not necessarily a country effect,” said RBA. “While many investors were captivated by the U.K.’s dysfunctional political issues, the U.K.’s sector exposures provided significant outperformance relative to the U.S.”

And it isn’t just in the U.K.: Countries with the smallest exposure to technology, consumer discretionary, and communication stocks fared better. “This has been true in virtually every global equity market,” RBA said.

Where does that leave U.S. investors? RBA acknowledged concerns about investing outside the U.S., but said the risks already seem to be reflected in the valuations in other countries. And, on the flip side, “there are risks within the U.S. that investors seem to be ignoring.” 

One worrying sign is that five years ago, the U.S. had the smallest proportion of negative earnings surprises of any major region. Today, however, it has the highest. “This seems a significant warning signal because consensus remains quite bullish on the prospects for U.S. equities relative to global equities,” the report said.

RBA’s world view is reflected in its macro strategies and portfolios constructed for clients. In the RBA Global Equity ETF, for example, a decade ago, when the U.S. had significantly higher expected returns, the firm was “significantly overweight” U.S. stocks. In 2010, non-U. S. exposure was just 24%, underweight the benchmark used to track its performance. whereas today it is 37%, or roughly in line with the benchmark.

Write to Lauren Foster at


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