EAFE stocks, those in the developed Europe and Asia regions, have underperformed US stocks in eight of the last eleven years. That batting average might be decent if you are a professional baseball player, but not so much if you are a professional investor. What’s even worse is that in two of the years in which EAFE stocks actually did outperform US stocks, the outperformance was so negligible as to not be of much consequence to one’s performance numbers: akin to the eighth batter in the rotation hitting a single with two outs and the pitcher up to bat next. With this poor track record, is it possible that EAFE stocks as a group could ever work again or are the next ten years doomed for more of the same?
Luckily for the EAFE group, some of the important fundamentals may be finally coming around. For example, the relative PE ratio between EAFE and the S&P 500 is now basically at the lowest level it’s been in a decade. This indicates that those EAFE stocks may finally have discounted enough bad news to have built in a sufficient margin of error for investors to take another look.
