The EAFE iShares ETF (EFA) is our proxy for foreign equities. It covers Europe, Australia, the Far East, but not the emerging markets or any U.S. based companies.
The SPY ETF tracks the S&P 500 (S&P 500 SPDR).
- In other words, for every $1.00 in foreign equity funds, hold $2.00 in U.S. equity funds
When the RED line trades ABOVE the BLUE line, we are BULLISH on foreign equity mutual funds (EFA) and recommend a 2-to-1 ratio allocation of foreign funds relative to U.S. (domestic) equity funds.
- In other words, for every $1.00 in U.S. equity funds, hold $2.00 in foreign equity funds.
When the RED line trades BELOW the BLUE line, we are BULLISH on U.S. equity mutual funds (SPY) and recommend a 2-to-1 ratio allocation of U.S. (domestic) equity funds relative to foreign foreign equity funds.
The RED line has traded ABOVE the BLUE line since May 15, 2009. Therefore, we favor EFA over SPY by a 2-to-1 margin until the relationship reverses. Since May 15, EFA is up +31.6% versus a +24.9% gain for SPY, a +6.7% outperformance difference in only six months.
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