One of the great things about our business is that we get to talk to advisors of all shapes and sizes, all across the US and beyond. For the past five years, most have not wanted to discuss International (non-US and Emerging Markets) investing.

Over the last 24 months, the average correlation between country equity markets has dropped significantly. These dropping country correlations are also clearly visible at the regional level.

At Accuvest Global Advisors, we are known as the “country” guys, as we have been analyzing data at the country level and ranking countries for over 12 years. However, more often than not, advisors ask what our perspective and opinion is from a regional standpoint.

The first half of 2017 is now in the books. You have to love a full year’s worth of returns in the first six months of the year. My guess: Returns get harder and the ride gets bumpier from here. With volatility so low, it’s hard not to expect some mean reversion this summer. Holding some cash and being tactical around the core could be the best bet heading into year end.

More often than not, advisors and clients move too slowly in increasing allocations away from the U.S., thus missing out on much of the International rebounds that have occurred throughout history. This is largely due to Home Country bias and not feeling as comfortable with having exposures to countries and companies with which they aren’t as familiar.

We view Japanese equities as the 7th most attractive investment out of a universe of 34 liquid investable countries. Japan stands out with stronger than average (and improving) fundamentals with below average risk.  Furthermore, Japanese equities exhibit attractive value, with the country’s overall value profile coming in at 7th overall in April.

With roughly seven billion people on the planet, global strategies offer access to the world’s most important companies. The average U.S. investor portfolio is chronically overweight domestic stocks at a time when International offers more opportunity. 

Why has this happened? And more importantly, have these historical relationships been permanently severed? Let us offer four potential explanations for what has happened, and then our opinion as to what the future might hold.