Rob Arnott, founder and chief executive officer of Research Affiliates, believes investors should avoid U.S. stocks and buy emerging market equities to outperform in the coming years.
"Our global asset allocation work is giving some pretty stark indications. We like to look at what we call a Shiller PE ratio, price relative to 10-year smoothed earnings. U.S. is at 29 times earnings. The markets have been higher than those levels twice in history, the tech bubble and 1929. That's not very pleasant company to keep. I'd be very worried about US equities," Arnott said.
"International stocks are at 14 to 15 times earnings. That's not bad. Emerging market stocks are 11 to 12 times earnings. That's cheap. So I would look to invest my equity money outside of the US … Emerging markets is the low hanging fruit in world investing today," he added.
Approximately $179 billion of assets are managed using strategies developed by Research Affiliates as of March 2017, according to the company website. The firm's RAFI Developed index generated 4.85 percent annual returns in the last decade compared to the MSCI All Country World index's 4.27 percent return.
Source: Bloomberg Pro Terminal
Trader Bozhidar Arabadzhiev
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