5%+ Dividend Yield Portfolio: Foreign Markets Disappointing You Again? (August 2018 Review)

Outlook Call it the pain of international diversification for 2018. With a significant divergence between US and international equities, the cost with holding DM and EM stocks has been significant. The differential between EM and US growth indices is over 25%.
- Mark Rzepczynski

There's just no way to sugar coat it, owning foreign stocks in 2018 (just like in 2017) has a real drag on returns. And there's plenty of pain to go around with both developed and emerging markets -4.2% and -8.4% respectively. But I think dumping these holdings now would be a mistake. As I reviewed in my April 2018 post, the relative valuation differences are just too pronounced to ignore forever.
With about 30% of my holdings in foreign stocks, this has personally impacted me in a meaningful way (though my value focus in a market that has been rewarding growth stories certainly plays a role as well). Now, I'm not so arrogant as to suggest that the lower valuations aren't warranted in the current market environment (the U.S. economy has been cruising and trade wars have hurt other markets more than ours thus far); however, history suggests that a mean reversion will occur eventually, so patient investors can earn a much higher yield in foreign equities while waiting for U.S. frothiness to settle a bit.
August 2018 Review August 2018 was positive for both me (+1.1%) and the S&P 500 (+3.2%), but my defensive slant again caused a meaningful lag to the market index.... Read more