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Happy Friday everyone, and welcome to our issue #21! In this edition, we’ll discuss the stock market bubble—in the US and abroad, dividend stock ideas for 2020, and the lackluster performance of actively managed funds in 2019.
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So here are the questions for today’s edition:
It’s apparent that the US stock market is in a bubble, but what about international markets? Are there other countries that did just as well? Which countries didn’t do so well?
What are your dividend picks for 2020?
Can you give us an update on how actively managed funds did in 2019?
Let’s give you the summary first.
With the S&P returning over 30% in 2019, investors are wondering if the US was the best performing among the worlds’ stock markets. The US did very well, no doubt, but so did many other countries. The graph below depicts 1-year return of major international stock markets; take a look at Russia ETF (RSX).
As you know, we won’t recommend any dividend stocks (or funds), but we do provide ideas for your research. One logical place to start is high-yield ETFs and mutual funds. If you’re really keen on picking individual stocks, then check out the list of stocks that haven’t cut their dividend in the past 5 years and that have at least 8% dividend yield.
Morningstar published an insightful study which says that US large-cap active funds gained on average slightly more than 25%, which is still trailing the S&P 500’s 33% return for 2019 (including dividend reinvestments).
Global stock markets posted their best year in 2019 since the financial crisis a decade ago, as investors shrugged off trade tensions and warnings of slowing growth in major economies.
The MSCI ACWI Index, which tracks stocks across the developed and emerging world, jumped by 24% during 2019—the strongest performance since 2009.
Stock markets surged despite warnings from the International Monetary Fund in 2019 that the global economy was in its weakest state since the 2008 financial crisis. The IMF downgraded its forecasts for 2019 and 2020 in October, citing central banks’ limited ammunition to tackle a slowdown and the impact of the US-China trade war. However, Donald Trump’s announcement of a phase one peace deal in the dispute between the US and China was greeted with a rally.
Below are some stocks with dividend yields of at least 8% that haven't cut their dividend in the past 5 years. Be sure to research those stocks further before making an investment.
The S&P 500 returned 33% in 2019, while large-company active-fund investors gained on average slightly more than 25% last year. While a 25% return is generally considered high, it’s below the benchmark, so it’s fair to say that large-cap funds have once again underperformed the index.
On the bright side, around 40% of active funds beat their indexes last year, a slight improvement from 2018. When you include the fees, 29% of such funds surpassed their benchmarks.
Foreign equity active managers did significantly better. 53% of active foreign stock funds outperformed their bogies last year. Below is the share of active funds that beat their bogies, sorted out by fund category (courtesy or Morningstar).
Here is one of the most interesting insights: of the active funds that beat their respective indexes in 2019, only 16% had have managed to do this consistently over the course of three years, from 2017 until 2019.
The question we have for you is, can you successfully predict future outperformers, or would you rather stick with the index?
That’s it for this edition. As always, ask us anything on our site. See you next week.
The AskFinny Team
Disclaimer: Nothing in this communication should be construed as a solicitation or offer, or recommendation, to buy or sell any security or product. The Gist reflects the opinions of only the authors who are associated persons of Finstead Inc. The Gist is meant to be used for informational purposes only. Past performance is no guarantee of future results, and any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in some loss. AskFinny does not provide personal financial planning services to individual investors.