The Case For Staying Invested: International Stocks Example

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I have written many times in the past on the importance for staying invested for the long haul. Having patience and staying focused on the long-term goals is especially difficult during adverse market conditions such as the bear market we are currently in. Simply quitting the market by selling everything and staying on the sidelines will not be helpful to say the least. This is because it is foolish to sell when stocks are their lowest levels. In addition, while selling is easy buying back at the bottom is not. Markets can turn almost overnight and it is impossible to predict when is the right time to jump back in. So to put it another way, in order to time the market one has be right two times – once to sell and another to buy back again. For most investors this is not humanly possible – especially being right twice.

Similar to the popular chart for the S&P 500, the following chart shows the largest intra-year declines and the year-end returns for international stocks as represented by the MSCI EAFE Index. Definition of this index from MSCI:

“The MSCI EAFE Index is an equity index which captures large and mid cap representation across 21 Developed Markets countries around the world, excluding the US and Canada. With 799 constituents, the index covers approximately 85% of the free float adjusted market capitalization in each country.”

The MSCI EAFE Index’s largest intra-year declines vs, year-end total returns from 2001 to 2021:

Click to enlarge

Source: The Power of Perseverance, Franklin Templeton

The above chart shows that perseverance pays off. For instance, in 2020 international stocks declined by 23% but still ended the year with a positive total return of 8%. Similar scenario has occurred over the years from 2001.

Related ETF:

  • Vanguard Developed Markets Index Fund ETF (VEA)

Disclosure: No positions

S&P 500 Sector Returns Chart – First Half 2022

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Novel Investor has updated the sector returns chart for the S&P 500 for the first half of year 2022. This chart shows the annual returns of the various sectors of the S&P 500 together with the current year data.

With bear market raging across the equity market, the best performing sector this year has been the energy sector with a return of over 31%. This follows the best performance of the sector in 2021. The other sectors that have relatively performed better so far this year include: utilities, consumer staples and health care.

On the other hand, the worst performing sector is consumer discretionary followed  by communication services and information technology. All these have declined much more than the S&P 500 as shown in the chart below:

Click to enlarge

Source: Novel Investor

Related ETFs:

  1. SPDR S&P 500 ETF (SPY)
  2. iShares Core S&P 500 ETF (IVV)
  3. Vanguard S&P 500 ETF (VOO)
  4. SPDR Portfolio S&P 500  ETF (SPLG)

Disclosure: No positions

Knowledge is Power: Short-Termism, All-Weather Investing, Market Volatility Edition

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The US equity market is in the midst of the one of the worst bear markets in decades. Though there are occasional rises in the market for a day or two, the S&P 500 is down over 18% YTD. Energy stocks are the winners so far this year. Utilities are holding up well with a decline of just 1.9% YTD.

In Europe, Germany’s DAX is down over 18%. UK’s FTSE 100 is off by 2.5% but the domestic economy focused FTSE-100 has plunged by about 20% YTD.

Some emerging markets are performing better than developed markets. Chile is up by over 12% while Brazil and India are off by 4.3% and 6.5% respectively. With that said, below are some interesting reads for the weekend:

Food Stocks Offer Shelter and Some Growth in Bear Markets

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In bear markets there are very few places that investors can hide. Traditionally a few sectors such as utilities, healthcare and food offer shelter from the market storm. These sectors are somewhat immune to factors such as inflation and are necessities that consumers will need even during market downturns. For example, while consumers may cut down on discretionary items such as vacations, furniture, autos, etc. they are not going to avoid buying food.

Among the major food producers, General Mills(GIS) beat earnings and revenue forecasts in the most quarter and also increased its dividend payments by about 6%. This was possible because the firm has pricing power and consumers pay higher prices for their favorite cereals and other items.

With that said, the below chart shows the comparative year-to-returns of major food stocks:

Click to enlarge

Source: Yahoo Finance

With the exception of J M Smucker Co (SJM) all of the stocks shown are in the positive territory. This type of performance is hard to come by in a bear market when everything keeps going down.

The contrast in the performance of food stocks vs. the overall market is substantial. While the S&P 500 is down 20%, Post Holdings Inc (POST) has shot up by 21% so far this year. The company even implemented a stock split a few months ago.

The key takeaway is that food stocks offer stability and some growth during adverse market conditions. These stocks may seem like offering no returns during bull markets. But their true value becomes clear when growth stocks plunge and the bear is in control.

Disclosure: Long GIS

A Review of Foreign Oil and Gas Producer Stock Returns

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US stocks are squarely in the bear market with the S&P 500 down over 20% so far this year. There is no place to hide and take shelter as most sectors are down. One of the few sectors that has performed well is the energy sector. Energy stocks are up by 29.2% YTD. Crude has soared by over 40% and natural gas is also a winner with a rise of 45.4% year-to-date.

The demand for oil and other energy commodities has shot up and continues to remain strong with the end of the Covid-19 pandemic. Despite high prices consumers are traveling for example. The Russia-Ukraine war has also made the situation worse. Oil prices are unlikely to go down significantly until the war ends. Releasing small amount of oil from the Strategic Petroleum Reserve (SPR) and cutting federal taxes are all for PR purposes and is not going to help take the price of gasoline to pre-pandemic levels.

With that said, most of the oil stocks have performed very well in this brutal market. For example, US energy giant Exxon Mobil (XOM) has increased by 38%. After reaching as high as $104 the stock is currently trading at over $87. Similarly Chevron(CVX) and ConocoPhillips(COP) have risen by 23% and 24% respectively.

Though US energy stocks are up by double digit percentage points, not all exchange-listed foreign oil producers have done well. For instance, Norway’s Equinor (EQNR) has gone up 28% YTD.

The Year-to-Date returns of Foreign Oil & Gas Producers trading on the US exchanges are shown below:

S.No.Company NameTickerStock Price (Ending July 1,2022)Yeat-to-Date Change (%)Country
1Vista Energy S.A.B. de C.V.VIST$7.4840.34%Argentina
2SasolSSL$21.6832.20%South Africa
3EquinorEQNR$33.8328.48%Norway
4Transportadora de Gas del SurTGS$5.2217.57%Argentina
5PetroChinaPTR$47.357.10%China
6Petroleo Brasileiro-PetrobrasPBR$11.767.10%Brazil
7TOTALTOT$52.836.81%France
8BPBP$28.286.20%United Kingdom
9China Petroleum & ChemicalSNP$45.14-2.95%China
10YPFYPF$3.32-13.09%Argentina
11EcopetrolEC$11.08-14.04%Colombia
12EniE$23.72-14.21%Italy

Source: BNY Mellon

Industry leaders such as Total and BP have had average returns so far this year. Political risk had led investors to flee Colombia’s EcoPetrol(EC) since the country elected its first leftist President Gustavo Petro.

From an investment perspective, the time to buy oil stocks was last year. However investors looking to add foreign oil stocks can keep an eye on the above list and look for attractive entry points.

Disclosure: Long EC