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Don’t Miss Opportunities Abroad. Globalize Your Portfolio.

The PACER PERSPECTIVE
September 2016

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Don't Miss Opportunities Abroad.
Globalize Your Portfolio.

- Michael Mack, Portfolio Manager

A common piece of investment advice is to “invest in what you know.” This may be sound advice, but it limits investors to a small part of the market. Most investors are underinvested in international stocks because of unfamiliarity with companies in these markets. What they may not realize is that they are missing out on big opportunities outside the US.


Missing Out On International Opportunities
The US makes up a little more than half of the whole stock market and roughly 60% of dividends come from outside the US. Those only investing domestically are potentially missing out on companies that have more attractive valuations such as dividends, earnings and free cash flow.

  Market Cap Earnings Free Cash Flow Dividends
Inter-
national
$15,142,562.68 46.46% $676,822.36 45.98% $1,017,144.87 50.88% $480,166.54 57.52%
US $17,449,470.61 53.54% $795,115.30 54.02% $982,149.30 49.12% $354,611.49 42.48%

Source: FactSet, as of 8/31/16

The US market has seen a solid bull market streak for seven years, but 7 out of the last 10 years, the United States has not been the top performing country. When lagging, our domestic market underperformed the leader by an average of 12.69%.

FTSE All World Developed Large Cap Index Performance Breakdown by Country (%)

FTSE All World Developed Large Cap Index Performance Breakdown by Country (%)

Source: FactSet.
The above chart represents the annual total returns of the top performing countries each year. The FTSE All World Developed Large Cap Index includes more than the countries listed above.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. You cannot invest in an index.


Markets Are Cyclical, But Unpredictable
It may be encouraging to see that the US market has been consistently growing for the last several years, but we should remember the market is cyclical. Eventually this cycle will end and a new one will begin.

S&P 500® vs MSCI EAFE – as of 6/30/16

S&P 500® Index measures the performance of the large capitalization sector of the U.S. equity market and is considered one of the best representations of the domestic economy. Utilizing a market-cap weighting structure, this index invests in the 500 largest U.S. firms.
MSCI EAFE Index is a stock market index that is designed to measure the equity market performance of developed markets outside of the U.S. & Canada.

 S&P 500® vs MSCI EAFE – as of 6/30/16

Source: Bloomberg.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. You cannot invest in an index.

The chart below illustrates the market cycles of the S&P 500® and the MSCI EAFE over the last 45 years. The average cycle between international and domestic lasts 4.7 years. While it is unknown when the tide will change, currently we are in a 9.1 year run favoring US stocks. History indicates we are well overdue for an international cycle.

    MSCI EAFE S&P 500 Years
12/31/69 6/29/73 70.73% 26.70% 3.5
6/29/73 10/29/76 -26.19% 13.17% 3.3
10/29/76 12/29/78 76.00% 4.07% 2.2
12/29/78 10/29/82 5.72% 71.27% 3.8
10/29/82 11/30/88 550.87% 160.31% 6.1
11/30/88 1/29/93 -16.22% 83.34% 4.2
1/29/93 6/30/94 44.22% 5.44% 1.4
6/30/94 1/31/02 15.67% 190.06% 7.6
1/31/02 11/30/07 141.35% 45.58% 5.8
11/30/07 6/30/16 -10.34% 70.69% 9.1
      Average 4.7

Source: Bloomberg.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. You cannot invest in an index.


Opportunities To Invest Internationally
If you are investing solely in the US or are underinvesting internationally, it maybe time to reassess your portfolio. Consider fundamentals when investing in something you are unfamiliar with. Pacer ETFs offers 2 exchange traded funds with international exposure. Each has a different strategic investing purpose.
 

Pacer Trendpilot™ European Index ETF Pacer Trendpilot European Index ETF

An ETF that aims to participate in the market when it is trending up, maintain some exposure during short-term market declines and move to 3-month US T-Bills when it is trending down.

 

 

 

Pacer Global Cash Cows Dividend ETFPacer Global Cash Cows Dividend ETF

Uses a free cash flow yield screen and a dividend yield screen to invest in 100 companies from the FTSE Developed Large-Cap Index. It aims to provide a continuous stream of income and capital appreciation over time by screening for companies with a high free cash flow yield and a high dividend yield.
 

 

 

This document does not take into account any investor’s particular investment objectives, strategies, tax status, or investment horizon. Please consult with your financial advisor and tax advisor before investing.

This document is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. This document represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. The user of this information assumes the entire risk of any use made of the information provided herein.