Not All The Best Stocks Are In The U.S.

One of the myth that is common among investors is that ALL the best stocks in the world are in the U.S. Nothing could be further from the truth. While it is correct that overall US stocks have performed very well in the past few years outperforming their foreign peers this does not mean the best performing stocks are only in the US. In fact, some of the top performing stocks at a global level can be found outside of this country.

The reason why many best performing stocks are abroad is because the total number of stocks in the world excluding the US is a lot higher than the domestic companies currently trading in the US market. So with a larger universe the opportunities to find top stocks is higher.It should be noted that the country is home some of the fastest growing, top performing and world-class companies such as Netflix(NFLX), Amazon(AMZN), etc. However many of these giants are highly valued or in some ways overvalued leading to a rich valuation for the overall market vs. other developed markets.

According to an article at the Capital Group, 75% of the top stocks since 2011 have been outside the U.S. From the article:

In fact, looking at it on a company-by-company basis, it’s the opposite: The stocks with the best annual returns have been overwhelmingly located in non-U.S. markets.

That company-by-company trend is even more pronounced in the year-to-date period through May 31. The list of investable companies with the best year-to-date returns is dominated by Chinese firms. That’s not surprising, given China was the first country to get hit by the COVID-19 outbreak and among the first to emerge from lockdown.

While the YTD period is a very short time frame, the trend has generally played out over longer periods as well. Why? It’s all about opportunity set. There are roughly three times as many foreign stocks as domestic. So why fish in a smaller pond when there are great companies all over the world? It’s important to have the flexibility to choose among the best companies, no matter where they are located.