If you’ve ever heard a voice in your head, like a little devil on your shoulder, softly coaxing you: “C’mon, man, you’re American! Invest in American companies, my dude!” … then you’re like the majority of investors.
Home country bias is a “mental glitch” that plagues most of us.
But in last month’s Overseas Opportunities, I said that if you’re the type of investor who will only consider U.S. stocks instead of international ETFs or stocks … you’re missing out on HALF of the global markets’ best opportunities.
I told you that to be a truly successful investor, you have to keep an open mind and be willing to make investments in both U.S. and foreign stocks.
And you can do it with a basic brokerage account, in U.S. dollars, buying shares of a fund that trades on the New York Stock Exchange!
You don’t need to pay a bunch of fees, worry about exchange rates or get special permissions to make sure you have exposure to other economies’ stocks.
On September 24, I wrote that the iShares MSCI India Fund (NYSE: INDA) was the top-ranked international stock market exchange-traded fund (ETF) among the top 15 global economies I track in my Cycle 9 Alert momentum service.
How Feeling Uncomfortable Pays Off
You see, Indian stocks aren’t in the news flow near as much as U.S. stocks are. And frankly, I totally understand if you feel more comfortable investing in U.S. stocks.
Just realize, though, the stock market doesn’t “pay” you to feel comfortable. Instead, market-beating returns often come from investments that aren’t quite as obvious or “comfortable” to make.
For example, last month in my Green Zone Fortunes service, I recommended a little-known Indian technology consulting company which, despite its lucrative partnership with Amazon, doesn’t get much attention in the press.
Sure, it would have felt more comfortable to simply invest in Amazon. But my six-factor Green Zone Ratings model for stocks told us that this smaller Indian company was a better buy.
It’s still early, but so far this stock is outperforming. The stock is up 10% since I advised my readers to buy it just over a month ago. In that time, Amazon is up just 2.6%, and the S&P 500 has gained only 1.5%.
All told, Indian stocks have strong market-beating momentum right now.
Since I recommended the iShares MSCI India ETF (NYSE: INDA) to you back on September 24, Indian stocks have outperformed U.S. stocks and all but two of the top 15 major global stock markets.
Have a look:
In my Green Zone Fortunes service, we bought an Indian stock that trades on the New York Stock Exchange.
But thanks to recent growth and innovation in the ETF space, it’s even easier to gain exposure to international stock markets … also in a diversified manner … and, to boot, using some of Wall Street’s most powerful “active” trading strategies.
The Momentum Principle: Buy high … sell higher!
And that’s what today’s Overseas Opportunities feature is all about … an ETF that gives you exposure to international stocks and the Momentum Principle.
IMTM ETF: Market-Beating Momentum in Foreign Stocks
I wrote on Monday about the 15 ETFs I pitched at an investment conference last October, and how that portfolio has beaten the S&P 500 handily over the past year.
One of the 15 ETFs I recommended buying is the iShares MSCI International Momentum Factor ETF (NYSE: IMTM).
The clip below from the fund’s webpage, which you can view here, describes the ETF’s objective:
In my own words, IMTM gives you exposure to:
- International stocks.
- The Momentum Principle.
You should, by now, understand the value of investing in both U.S. and international stocks.
As for the Momentum Principle, you may notice that iShares quotes an academic paper alongside its claim that momentum “has historically driven a significant part of companies’ risk and return.”
That paper is the seminal “momentum” paper, and the same one I told attendees of my October 2019 investment conference to read.
It’s called “Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency.”
You see, until research on the Momentum Principle began giving crystal-clear proof that it’s a market-beating strategy … the dominant theory in finance was the Efficient Markets Theory, which, in layman’s terms, concluded that “you can’t beat the market.”
This paper was the start of proving that theory wrong, or at least incomplete.
You Can Beat the Market
In short, you can beat the market.
And, with the Momentum Principle, all you have to do is “buy winners.” Meaning, buy stocks that have been trending higher faster than the market (aka “winners”) … and avoid stocks that are either trending lower or otherwise trending higher more slowly than the market (aka “losers”).
That’s exactly what IMTM does. It buys international stocks that are trending higher at a faster rate than other international stocks.
Of course, some folks may feel that buying international stocks is somehow riskier than buying U.S. stocks, or, that buying “momentum” stocks can set you up for disappointment in down markets. But this year’s coronavirus crash gives us a good opportunity to see that that’s not the case.
Beginning from the late-February peak, this chart shows the percentage returns of IMTM (in blue) … the S&P 500 (in black) … and a “passive” international stock market ETF (in orange). A “passive” ETF holds foreign stocks but not with the help of the momentum factor.
IMTM ETF (Blue) Beat the Market During the Coronacrash
As you can see, IMTM not only fell a bit less during the crash, but has recovered strongly and is leading the other two benchmarks to new highs.
All told, I recommended buying IMTM during my October 2019 presentation because I believe in the Momentum Principle in my bones … and because I think all investors should have some exposure to international stocks.
U.S. stocks have enjoyed a great run of outperformance in recent years. But smart investors need to remember that they’re not the only game in town. I’m anticipating a period in the not-so-distant future when international stocks take the market-leading baton.
Buying shares of the IMTM can be a great way to gain “one-click” access to both the momentum strategy and the market’s top international stocks.
To good profits,
Adam O’Dell, CMT
Chief Investment Strategist, Money & Markets