For the Biggest Gains, Think Outside the Box, and Invest Outside U.S. Markets

When investors talk about the stock market, invariably they’re referencing the S&P 500, the Dow 30 or the Nasdaq.

Here’s the thing: The best performing stock market gains are consistently found far beyond U.S. borders. Sadly, too many individual investors fail to do so, and are missing out on sizeable gains in overseas markets.

It’s a common mistake among professional and individual investors alike, called “home bias.” It’s the tendency to keep most of our money invested close to home, and in familiar names. The reality is that it’s a great big world, and getting bigger every day, with thousands of fast-growing companies located in emerging markets.

In fact, all U.S. listed stocks – including small- and mid-caps, not just the S&P 500 – make up only about 50% of total global stock market capital.

And yet, American mutual fund investors have only 27% of their stock holdings invested internationally, outside U.S. stocks. In other words, American retail investors are woefully underweight non-U.S. stocks, even though that’s where the best returns can be found.

Consider this: The top 10 stock markets with the greatest total return last year were ALL emerging or frontier markets, according to Bloomberg data. Not one single U.S. stock index made the list. And this isn’t just a recent phenomenon that’s unique to 2016 either, as you can see in the table below …

Click on the image for larger view.

In fact, over the past two decades, nine out of the ten top-performing stock markets have been in developing markets, many of them off-the-radar for most U.S. retail investors who don’t realize the gains they’re missing out on.

The one exception, in 1998, was Greece. It was considered a developed market back then, but ironically may be slipping back to emerging market status today, given the never-ending Greek debt tragedy.

Meanwhile, U.S. stocks have only placed in the top-ten twice during the last 20 years: A 7th-place finish, also in 1998, and a 4th-place finish in 2011. That’s it!

Look at the emerging market countries that have repeated in the top-10 time and again. The familiar BRICs: Brazil, Russia, India and of course China.

Many other emerging Asian nations make the list in multiple years including: Indonesia, Thailand and the Philippines. My colleague Larry Edelson is particularly bullish on Emerging Asian markets right now, recently writing: “an expanding population, rising incomes and dynamic monetary policy keep the Chinese and Asian growth story alive…” even as growth rates are slowing in the U.S., Europe and Japan.

And here’s another myth busted: You don’t need to open a brokerage account in Singapore, Brazil or Botswana in order to cash in on red-hot emerging stock markets either.

That’s because there are plenty of single-country ETFs available today that give you rifle-shot access to hundreds of emerging stock markets, with far greater growth prospects than the S&P 500 or Dow 30.

Bottom line: If you’re looking for big profit potential in 2017 and beyond – think outside the box and kick the “home bias” – by diversifying your investments outside U.S. markets alone.

Good investing,

Mike Burnick
Director of Research

P.S. Tomorrow morning in Money and Markets, I’m borrowing a page out of Larry Edelson’s playbook to zero in on the most undervalued markets in Emerging Asia with the best profit potential!

Mike Burnick, with 30 years of professional investment experience, is the Executive Director for The Edelson Institute, where he is the editor of Real Wealth Report, Gold Mining Millionaire, and E-Wave Trader. Mike has been a Registered Investment Adviser and portfolio manager responsible for the day-to-day operations of a mutual fund. He also served as Director of Research for Weiss Capital Management, where he assisted with trading and asset-allocation responsibilities for a $5 million ETF portfolio.