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Posted: 10/23/2025 1:33:40 PM EDT
[Last Edit: 1168RGR][Edited]
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I’ve noticed that a lot of posters elsewhere on the internet feel that buying foreign stocks or funds will provide protection against drawdowns of the US stock market. I’d like to dispute that notion. I’ve been doing some backtests. I’ll share the takeaways here, but let y’all look into the exact numbers and charts yourselves. For ease of explanation, I’ll limit it to 10yrs, VEU (Vanguard World Ex-US ETF) vs SPY and XLU (SPDR Utility Sector ETF) vs SPY. -VEU has more correlation with SPY than XLU has with SPY. -Every major drawdown of SPY has a synchronized drawdown of VEU. -This is not true of XLU. -Every time SPY draws down, VEU gets hit even worse. Edit: except once. -XLU’s big drawdowns are shallower than SPY’s. -VEU has had more dips greater than 5% than SPY has. -VEU has had more drawdowns greater than 10% than SPY has. -Both VEU and XLU underperform SPY. My interpretation is that like many other attempts to find a “safe” haven, VEU is somewhat uncorrelated with SPY’s upside, but suddenly correlates perfectly when the downside hits. Capping the upside, but providing minimal drawdown protection. Counterintuitively, foreign stocks may be worse at protecting against a US stock market drawdown than US-based defensive stocks. SPY and VTI (Vanguard Total US) are interchangeable for the sake of these observations, but I think SPY is more well-known, so I’m using it as my example. |
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Sometimes, short term trends are worth investing in. Trump 1.0 International was the #1 indice for the first year of his term (2017) I made the assumption it would repeat itself for Trump 2.0 first year. My 401 agrees with my assumption. Pics to show proof:   |
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Originally Posted By rtlm: Sometimes, short term trends are worth investing in. Trump 1.0 International was the #1 indice for the first year of his term (2017) I made the assumption it would repeat itself for Trump 2.0 first year. My 401 agrees with my assumption. Pics to show proof: https://www.ar15.com/media/mediaFiles/542569/Callan-3483841.jpg https://www.ar15.com/media/mediaFiles/542569/dont_be_scared-3640506.jpg |
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Originally Posted By 1168RGR: Respectfully, is that meant to dispute my primary point that Ex-US equities are unlikely to protect you against a US stock market drawdown, or my secondary point that US-based defensive sectors paradoxically appear more likely to provide that protection (though certainly not guaranteed)? Not at all. I was just pointing out that trends can change and sometimes rather quickly. YTD vs a 10yr trend in this example, International is tricky and I track the 401 international mutual funds I own so I know when to call it a day and get out of em. As far as US defensive sectors, I like it and times are changing with lots of new tech players on board in the defense industry. Lots of good choices to choose from. |
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| I can agree with that. Though, to clarify, by defensive sector, I do not mean defense sector (which is kicking butt). I just mean sectors that often skip across drawdowns or are otherwise less impacted. Utilities, healthcare, staples, and to a lesser extent, energy. In order of my perception of their ability to do so. |
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Originally Posted By 1168RGR: I can agree with that. Though, to clarify, by defensive sector, I do not mean defense sector (which is kicking butt). I just mean sectors that often skip across drawdowns or are otherwise less impacted. Utilities, healthcare, staples, and to a lesser extent, energy. In order of my perception of their ability to do so. Gotcha. I'm actually doing a lil profit taking today and buying some small positions in energy and nat gas. |
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