Q3 2017 Review: International ETF

David Kotok profile picture
David Kotok

By Matthew McAleer

Our International ETF strategy analyzes fiscal and interest rate policy and complements that research with trading analytics to determine portfolio risk/reward and valuations. The strategy has the benefit of flexibility in allocation by market cap size and developed vs. emerging markets.

Solid demand for foreign equities continued throughout Q3. Both developed and emerging markets advanced, with Europe and Latin America leading the respective moves. Market cycles will eventually wring out supply at underweight levels, and that appears to have created a coiled spring effect in international stocks as each mild pullback has been met with strong demand. Our previous notes focused on the similarities between the 2015-2016 loose, global monetary policy and the post-financial crises Fed policy moves. Capital tends to flow to asset classes that offer reasonable opportunities for a return on investment. With many foreign equity markets offering dividend yields at 2X to 3X the yield of their respective 10-year bonds, demand has been created.

Developed Markets (60%): Solid quarter across the EAFE names, with small-cap continuing to lead the charge. Although the USD has recovered from its Q2-Q3 weakness, we do not feel inclined to hedge our equity positions at this time. While it is important not to let currency markets dictate positioning, we will continue to monitor the USD vs. euro and yen.

Emerging Markets (35%): Demand driven by broad asset allocation shifts continues to benefit emerging markets. Our Latin America positions had very strong runs as we were rewarded for adding exposure into the Brazilian political sell-off in May. It will be important to observe whether the late Q3 relative strength in the developed markets vs. emerging markets continues.

Cash (5%): Fairly low level for our strategy, as we focus much of our work on risk and let the upside take care of itself.

This article was written by

David Kotok profile picture
David Kotok co-founded Cumberland Advisors in 1973 and has been its Chief Investment Officer since inception. David’s articles and financial market commentaries have appeared in The New York Times, The Wall Street Journal, Barron’s, and other publications. He is a frequent contributor to Bloomberg TV and Bloomberg Radio, Yahoo Finance TV, and other media. He has authored or co-authored four books, including the second edition of From Bear to Bull with ETFs and Adventures in Muniland. He holds a B.S. in economics from The Wharton School of the University of Pennsylvania, an M.S. in organizational dynamics from The School of Arts and Sciences at the University of Pennsylvania, and an M.A. in philosophy from the University of Pennsylvania.David has served as Program Chairman and currently serves as a Director of the Global Interdependence Center (GIC), www.interdependence.org, whose mission is to encourage the expansion of global dialogue and free trade in order to improve cooperation and understanding among nation states, with the goal of reducing international conflicts and improving worldwide living standards. David chaired its Central Banking Series and organized a five-continent dialogue held in Cape Town, Hong Kong, Hanoi, Milan, Paris, Philadelphia, Prague, Rome, Santiago, Shanghai, Singapore, Tallinn, and Zambia (Livingstone). He has received the Global Citizen Award from GIC for his efforts. David is a member of the National Business Economics Issues Council (NBEIC), the National Association for Business Economics (NABE), has served on the Research Advisory Board of BCA Research and is currently on the advisory board of RiskBridge Advisors. He has also served as a Commissioner of the Delaware River Port Authority (DRPA) and on the Treasury Transition Teams for New Jersey Governors Kean and Whitman. Additionally, he has served as a board member of the New Jersey Economic Development Authority and as Chairman of the New Jersey Casino Reinvestment Development Authority.
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