As US Equities (^GSPC, ^DJI, ^IXIC) and the Magnificent Seven have been rallying, many investors are looking for ways to navigate the bigger picture. WisdomTree Global CIO Jeremy Schwartz and Crossmark Global Investments CEO and CIO Bob Doll join Yahoo Finance to discuss where investment opportunities lie beyond US equities and how to split allocations across markets.
Schwartz explains that investors seeking diversification are likely deciding between Western countries "mired in war and sluggish economies" and Asian markets, rife with "political tension." He advises looking to countries with shareholder-friendly actions like buybacks, recommending Indian markets in particular. Doll concurs, pointing to costs: "The US is record expensive compared to the rest of the world...that doesn't mean you run out and sell all your US stocks and buy all non-US stocks, but it does tell you what your risk-reward might be." Doll compares future financial prospects in India to China today: "We are going to talk about India 10 years from now like we talk about China today. They're doing a lot of great things. They need to open up their banking system...a little bit but good things happening there."
As gold (GC=F) reaches new highs in step with bitcoin (BTC-USD), Schwartz highlights gold's ties to Chinese markets: "Gold ETFs have been in outflows, you actually haven't seen money moving into gold and its hitting these new highs, so people are saying, well, where is this money coming from? Why is gold doing so well? It may be actually coming from China...the central banks there have been buying up precious metals and gold. You see silver playing catch up, we are seeing some money move into that, but I think its been an unlooked category."
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor's note: This article was written by Nicholas Jacobino
[THEME MUSIC]
JULIE HYMAN: With 10 minutes left till the closing bell on Wall Street, we're looking at how to navigate the big picture with the Yahoo Finance playbook. It's been quite the run so far this year for the market. But don't forget about opportunities outside of US equities. We're joined by Jeremy Schwartz, WisdomTree Global chief investment officer, and Bob Doll Crossmark, Global Investments CEO and CIO. Thanks to you both so much for joining us.
Jeremy, I'm going to start with you here because we talk a lot about US stocks making new records. We talk a lot about the AI enthusiasm. We talk less about where else people should look. And people should always diversify, right? But are there times where people need to think about diversification more than others?
JEREMY SCHWARTZ: Yeah, at a time when people are thinking about valuations on these stocks, the S&P 21 times earnings, the foreign markets are way cheaper. The question is, where do you want to go? Do you want to go to the developed world like Europe, where they're mired in a war, sort of sluggish economy? You want to go to Asia with China and all the political tension there? Our two favorite countries outside the US are Japan and India. Both are part of the shift away from China, people reallocating with all the geopolitical tension.
You just talked about buybacks. It's the cash flows you're doing. We say, where outside the US are they doing the most shareholder friendly actions that are encouraging buybacks, doing dividends, is Japan. Actually, they have a whole process at their exchanges, where, if you have a price to book ratio below 1, they're threatening all sorts of actions. And these companies are responding. And they're trying to increase their valuation by doing dividends, doing buybacks. And it's a much cheaper market than the US.
So it's been trading like a tech stock, I say. So what's been doing better than large cap growth in the US? Our ETF, DXJ, which has been double the return of our large cap growth this year, in this year when tech's been leading. Last year was also very hot, but still a cheap market.
JOSH LIPTON: Interesting. So, Bob, I want to bring you in here as well. So let me get your thoughts on Japan as well, Bob. So EWJ, it's about 10% this year, Bob. It's up about 25% over the last 12 months. I mean, you know, Warren Buffett notably got involved, right, greatest value investor of all time. He sees opportunity. What do you think, Bob?
BOB DOLL: I agree with your supposition and Jeremy's comments. Look, the US is record expensive compared to the rest of the world, that gap. That doesn't mean you run out and sell all your US stocks and buy all non-US stocks, but it does tell you what your risk-reward might be.
So I think I meet too many Americans have 100% of their money in the US. Do a little diversification. It's OK. You don't have to be a hero. Japan's fine. India, I'd underscore it as well. We're going to talk about India 10 years from now like we talk about China today. They're doing a lot of great things. They need to open up their banking system, their financial system a little bit. But good things are happening there.
JULIE HYMAN: And, Bob, just to follow up on this, when you say don't be a hero, how should people be thinking about allocation, right? If they are going to allocate to foreign stocks, what percentage makes sense? And I know there's no one size fits all, but sort a general rule of thumb.
BOB DOLL: Yeah, my general rule is 80 US, 29 non-US for US investors. But if I'm 100-0, it doesn't mean go to 20 tomorrow morning. Dollar cost averaging program over a bunch of months to move in that direction probably makes sense.
Look, if the US was not performing from an economic standpoint reasonably well, the world might be in a recession because Germany, the UK, Japan, China either coming out of recession, heading into one, or mired in a shallow one. There are reasons these markets have generally lagged Japan, a notable exception.
JOSH LIPTON: And, Jeremy, bring you back here as well, switching gears a little bit. It's interesting, Jeremy, a trend to see gold hitting these highs, right, at the same time as Bitcoin is doing the same. What are we to make of that as investors?
JEREMY SCHWARTZ: You have digital gold, and you have the old gold, both coming back to old heights. You know, it's interesting. I think there is this worry about the debt, the deficits, the inflation. Now, you can say it's interesting, whereas Bitcoin is being driven by all the ETF flows, right? And so there's some analogs from when first gold ETF launched 10 years ago. It took two years to get to 10 billion. Bitcoin did it in two months. So huge amounts of money going to Bitcoin.
Gold ETFs have been in outflows. You actually haven't seen money moving into gold. And it's hitting these new highs. So people are saying, well, where is this money coming from? Why is gold doing so well? It may be actually coming from China. There's been some talk of foreign people. The central banks there have been buying up sort of precious metals and gold. We see silver playing a catch-up. We're seeing some money move into that.
But I think that's been an unloved category. You heard Druckenmiller sold some of his tech stocks, bought some of the miners. I mean, I think that's one of the plays to be watching what's out of favor, that the miners have been terrible for, like, two decades. And so I think maybe as a catch-up with gold, those could be another interesting place to look.
JULIE HYMAN: Huh. That is interesting. And, Bob, as we talk about diversification, you can't just consider stocks. You have to talk about these other asset classes. How are you thinking about, and what are you telling clients when it comes to digital gold and actual gold?
BOB DOLL: Yeah, so either way, you benefit in an inflationary world. Our view is inflation is going to stay sticky. It's not going to make the 2% that the Fed would like to see. And, therefore, having a little gold in your portfolio makes a lot of sense.
In some sense, you hope gold doesn't do well, and then the rest of your portfolio is. But I think we're in an environment where need that diversification.
JOSH LIPTON: Jeremy, I'll get you out of here on this. There was kind of an interesting contrarian call I just want to run past you. Julian Emanuel over at Evercore, he's a smart guy. And he was telling his clients he likes China here. And I think he was pointing out trough valuations was his point, absolutely and relatively. And he was saying, China shares, tactically attractive is, I think, is how he put it. What do you make of that call?
JEREMY SCHWARTZ: I understand the case. I mean, when you look at the valuation on some of these stocks, and they're reporting-- you had JD report this week. And people talk about, again, buybacks. But they're also talking about cash flow and the earnings and how much cash they have on their balance sheets. I understand the case that some of these stocks are starting to look depressed. And they're trying to call the turn. It's the geopolitical overhang that makes it very difficult. And so now, when you say-- when people start saying it's uninvestable, that when you--
JOSH LIPTON: Which we have heard on this show.
JEREMY SCHWARTZ: You heard energy, uninvestable back in COVID. That's when you get really interested as a value investor. So I'm very sympathetic to that. But the geopolitical overhang is real. We think there is this ongoing tension. We don't think they're stimulating in China. So people want to think they're going to do a big, big stimulus. We don't think that's happening. So it's got issues to work through. But I understand the case of stocks are cheap.
JOSH LIPTON: All right.
