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Don’t Give Up On Overseas Equities (Part 1)

The U.S. market has been a standout performer among world equity markets over the past five years. Such strong performance results creates a temptation to reallocate monies and gain greater exposure to the U.S. market, while moving away from lagging international stocks or even other asset classes. Such temptation tends to grow stronger the longer an asset class dominates the market leadership ranks.

We believe that an investments valuation is directly related to its long-term risk/return profile. Attractive valuations tend to deliver superior returns with less risk while higher valuations serve as a headwind to returns and increase risk. In many cases, investor sentiment will conflict with valuation readings (i.e. cheap valuations = poor sentiment; high valuations = optimistic sentiment).10.10.14

The chart (right) illustrates valuations, as measured by price/sales, of the U.S. market compared to international markets. Foreign markets trade today at a 42% discount relative to the U.S. Furthermore, U.S. valuations are above historical norms, suggesting returns are likely to be below-average from current levels. This suggests on a longer-term basis, chasing strong U.S. performance and un-diversifying portfolios may not be prudent.

DISCLAIMER: Past performance does not predict future results. This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.

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