I was not able to find a rationalization of the high international equity allocation in the static scenario.Considering 100% international? No.Anyone else considering going 100% VXUS in response to escalating US political instability and lofty US equity valuations?
Considering more international than VT? Yes. Not so much for those reasons, but yes with less bonds primarily because of finding in the paper by Anarkulova, Cederburg and O'Doherty.
https://papers.ssrn.com/sol3/papers.cfm ... id=4590406
To be sure/honest, the high U.S. valuation metrics are in the back of my mind.
The thing that peaks my curiosity about that paper is it is a very heavy international tilt -- for lack of a better word -- of 67 percent international (+/- depending on risk measures and objectives). This occurs despite the U.S. outperforming international in terms of return during the dates in the paper (1890-2023) by a decent amount (Table II).
What makes me cautious and not pulling the trigger as of yet? My own "simple" back testing using data since 1970.
On page 28 (PDF page 29) they show the benefit of a domestic/international/bonds strategy that is conditioned on the domestic equity market state (valuations). If I read it right, the excess return from the time-varying (dynamic) feature is very low.
On a note unrelated to the topic of this thread, I find it sad that they cut off their study of the leverage scenario at a nominal leverage of 100% borrowing, which is nonsensical given the possibility of portfolio margin and futures. I would have liked to see the optimization results with unconstrained leverage.
Statistics: Posted by comeinvest — Mon Feb 24, 2025 1:26 am — Replies 8802 — Views 1936604