Brad Rutan:
Welcome to the MFS Straight Talk Investment Series podcast. My name is Brad Rutan, and I'm your host and a market strategist here at MFS. In this series, along with my co-host and good friend, Jenine Garrelick, we explore a wide range of market topics relevant to investment professionals and their clients. Our goal is to educate and empower our listeners by taking the complex, making it easy to understand, trying to have a little fun along the way. In this first episode, our guest is Nick Paul, international Equity Portfolio Manager at MFS. We discuss if the dominance of US equities is over, if the period of international out-performance actually started in late 2022, and where MFS is finding opportunities outside of the US.
Jenine Garrelick:
A lot going on with the headlines. There's a big headline today, someone retiring, one of the greatest investors.
Brad Rutan:
Buffett.
Jenine Garrelick:
Buffett.
Brad Rutan:
Not Jimmy.
Jenine Garrelick:
Not Jimmy. No. Rest in peace, Jimmy.
Brad Rutan:
Rest in peace.
Jenine Garrelick:
And he actually made a comment about some of these headlines with tariffs. His quote that I'm reading, he said, "Trade should not be a weapon," but all we're hearing about is tariffs. Tariffs, how that's affecting our relationships, chain supply, all of it, right?
Brad Rutan:
And even if it shouldn't be used as a weapon, even if it's being used for negotiation, it sure feels like a weapon to a lot of people right now. It's obviously been a tough market. Now we're in this bear market rally. The S&P is back within 3%, down 3% in the year. We were down 19 at one point. Obviously, MSCA EAFA is up 12, so we're going to talk about that, as we're kind of a new paradigm we're now, but I think we should probably expect some more volatility.
Jenine Garrelick:
Yeah.
Brad Rutan:
The market is trading off what it sees in the news. I saw a great article the other day that showed when Lutnick or Navarro are in the news the most, the S&P is down 1% on those days. When Scott Bessent is in the news the most, the S&P is up like 20, 30 basis points, so it's literally the market is reacting to whatever it hears or whatever posts you see, but what we want to talk about today is international.
Jenine Garrelick:
Yes.
Brad Rutan:
Because, if you could throw up slide one, Mr. Schubert. Thank you. So, what we're showing you here on a slide or what I'm trying to describe is there's periods where international outperforms US, there's periods where US outperforms international. It does kind of happen in cycles. You can see periods where-
Jenine Garrelick:
So, your international is the blue.
Brad Rutan:
International is the blue, and US would be the gray, correct. Obviously, on the far right of this chart, we're showing you that the S&P has pretty much dominated for a very long period right now. Eric, you can take that down now. Thank you. The question is, is international prime now? We talked about the MSCA EAFAS is up 12%. It's outperforming the S&P this year, but is this the time when we are actually in a period where international is going to outperform for a while?
Luckily, we have a good friend and guest today, Nick Paul, who I've worked with since 2010. He's an equity portfolio manager here also. He was an institutional portfolio manager, but he is also an equity portfolio manager here, joined us in 2010. Interestingly, when you joined, I had to put a post-it note. We had offices right next to each other, that made sure it was Nick Paul, because he has two names that are first names, Nick and Paul, so I put there, Nick, so that I remember when I came out of my office and greeted you, that I didn't call you Paul, but you've been here since 2010. Thanks a lot for joining us today.
Nick Paul:
Yeah, no. Thanks to be here.
Brad Rutan:
So, let's talk about international. Are you pounding the table right now? Obviously, you work in the international equity space. Are you pounding the table in international right now? What's your gut feeling about what people should do with international right now?
Nick Paul:
Yeah, good question. Again, really great to be here. Two of my favorite people at MFS. It's funny you should ask that question. You hear pounding the table. Every time I have a conversation with clients around the opportunity set in international, I start off with a couple of things, and the first thing is I'm absolutely not coming here to pound the table and being reactionary to the short-term performance of international versus US, and say, "now's the time to load up on international." So, I would start to say that I have no agenda. One of the nice things at MFS is, as investors, we do not get paid on assets under management, so I have zero agenda to come here today and pound the table and say, "buy now, buy now. Now's the perfect timing." I do think it's a great opportunity, but no agenda. Then, the other couple of things is, and I mentioned it, what we talk about today is not reactionary to what's happened over the last, call it, four months.
Brad Rutan:
The tariffs, the election.
Nick Paul:
All that, the tariffs, the election, the performance differential between S&P. You talked about S&P being up 3% or down 3% on a year-to-date basis, non-US, including emerging markets, up closer to 10%. So, this is not reactionary because the spread of out performance for internationalists finally showed up after many, many years.
Brad Rutan:
So, then why international?
Nick Paul:
Why should we even talk about increasing exposure?
Jenine Garrelick:
Because there is a camp that is waiting for us to come back.
Nick Paul:
Yes, and I think we'll hopefully talk about that, because I do think that there's a lot of interesting points to talk about in terms of when non-US or when international last outperformed the US for an extended period of time, but to your question, what's the conversation about? And I also say the last thing is that my investment thesis for international is not cheap. Trust me, buy it. It'll work out for you, because that clearly has not worked out for the last 15 years. There has to be more there, but really, the conversation I feel like we're having today-
Jenine Garrelick:
Cheap, meaning the low PE?
Nick Paul:
Low PE, cheap valuations, relatively inexpensive valuations, but the conversation I try to have with clients that I think we're going to have today is really more about diversification, so diversification has not worked for investors for the last 15 plus years, but if you do look at the numbers this year, you actually are starting to see a very much a broadening out of the market, right? So, if you look at the S&P 500 or you look at the MSCI world, today, 65% of the companies have outperformed the benchmarks. We're starting to see a widening out of sectors, industries, companies that are delivering above benchmark performance, where call it pre-COVID or call it the last decade coming out of the global financial crisis, it was almost entirely about OPEC spending and mega-cap technology, which it was just the absolute perfect storm for that long duration asset class. The other thing I'll say too is this idea about diversification, international - we could put value on this and have this same conversation.
Brad Rutan:
You said long duration asset class. You're referring to growth-
Nick Paul:
Correct.
Brad Rutan:
... When you talk about that.
Nick Paul:
Correct.
Brad Rutan:
And value would be more of a shorter duration.
Nick Paul:
Shorter duration.
Brad Rutan:
Because this cash flow is coming off of it.
Nick Paul:
Correct, correct.
Brad Rutan:
Yes, okay.
Nick Paul:
So, you can really simply think of the US as kind of your growth exposure. Non-US would be more of a value play, and so the conversation we're having today, you can apply it to international. You could also apply it to growth versus value. In a lot of ways, you could apply it to large cap versus small cap. It's all sort of the same trade, but at the end of the day, I think diversification is the biggest takeaway, just because of simple market dynamics and the strong app performance of the US over the last close to 20, well, 15 years now. Investors are going to be much less diversified, typically speaking, and whether you're starting from zero or starting from a smaller percentage dedicated to non-US, I think diversification is really the theme today, where again, most investors within the US, I would say, are probably under-allocated by historical measures.
Brad Rutan:
If you could pull up the second chart, because it's interesting that this is showing the difference between international sector weights and US weights, so at the top, international is much heavier in financials and materials. Industrial is more cyclical sectors, very much like value, right?
Nick Paul:
Yeah.
Brad Rutan:
So, it's almost a way to diversify away from growth, and then the bottom, you see the underweight to technology and communication services, but it's a way to diversify, almost like you're getting a double diversification. It's more value, and it's less US, but it's something that a lot of people are probably pretty underweight right now from what we hear is international.
Jenine Garrelick:
Yeah, and then, based on that slide, they really are not diversified, to your point.
Nick Paul:
No.
Brad Rutan:
Correct. So, let's backtrack. Early this year, because we talked about the MFSCI EAFA is up 12. You had President Trump gave some comments about Europe, and then in response, Germany eliminated their debt break, so basically allowed themselves to borrow more to fund defense and infrastructure. We feel that the continent itself, and even UK is probably going to follow a similar path, that they need to take things into their own hands. That boosted stock returns for Europe.
Nick Paul:
Yes.
Brad Rutan:
Was that warranted? Was that real? Should we expect that to continue? Do you believe in that, or how do you look at the market so far this year in terms of what happened?
Nick Paul:
So, I think Germany, as an example, is a particularly important part of the story of why international, and I mean that in the context of where, in the US, where we're ushering in the golden age of America, and by default we may be in some ways ushering in the golden age of Europe, as they react to what's happening and the forces coming at them out of the new administration. What you see in Germany and other countries in Europe are elections where the governments now are more centrist. They're a little bit more capitalistic, so to speak, in terms of their approach to their local economies. I know they're thinking about less in the way of overly burdensome regulations on the companies that operate within those local markets and across Europe, but what I mean by it's an important part of the story is, remember I said don't buy something just because it's cheap? There has to be a catalyst there.
Brad Rutan:
Correct.
Nick Paul:
So, what's the catalyst? So, the catalyst is just think about where investments, and this comes back to Germany, where is investments, where is capital likely to flow over the next 10 to 15 years, where again, the last 10 to 15 years was absolutely dominated by mega cap technology. It was all about companies-
Brad Rutan:
Tech spending, OPEC spending.
Nick Paul:
OPEC spending, and it was the perfect storm, right? You had the whole digital transformation as companies transitioned to the cloud. Then, you had the pandemic. You had the whole stay at home trade, and what you did not see was a lack of traditional capital investment, right? And so, if you think about under-invested areas of the global economy, where you're likely to see capital flow over the next 10 to 15 years, to Germany's point, think about aerospace and defense.
Brad Rutan:
Right.
Nick Paul:
Think about infrastructure. Think about energy and the energy transition. Think about things like near-shoring, bringing supply chains closer to home, because at the end of the day, it's all about earnings, so the real investment thesis around non-US is that you're going to see a broadening out of investments across many more sectors and industries outside of just mega cap technology, which you'll continue to see investment there, for sure, but you're going to see a broadening out of investments that are going to benefit just a much wider cohort of sectors and industries. While we could easily make the claim that the best tech companies in the world reside in the US, to make that same claim across-
Brad Rutan:
Every sector.
Nick Paul:
... All sectors and industries is maybe a little bit naive.
Brad Rutan:
So, the earnings need to show up though, because the initial European stock rally was PE, so sentiment.
Nick Paul:
Correct.
Brad Rutan:
It was nice to see today that earnings came in about 3.3% in Europe, is expected to be negative 1.2. I don't know if that's a sign that's to come, but you mentioned COVID, you mentioned kind of the OPEX, the stay at home, the digital transformation. Why didn't this start after COVID? Why is it starting now?
Nick Paul:
Yeah. It's a good question, and it actually did, right? So, just take a step back. If you remember, go back to 2022, right? So, at the start of '22 coincided with rate hikes within the US and globally as a reaction to higher inflation coming out of the pandemic. The market absorbed those higher interest rates, and if you think about higher interest rates, we talked about US being a growth asset class, a longer duration asset class that does extremely well in a zero inflation, zero interest rate environment due to the future to longevity of cash flows. So, as interest rates went up, it made sense that the market would start to move into more value or more cyclical, like you pointed out, cyclical areas of the marketplace. It doesn't happen right away, but about maybe 10 months into the rate hikes in 2022, October of 2022, if you remember, we saw this massive rotation, so we started to see it play out everything that we're talking about today.
Brad Rutan:
International-
Nick Paul:
You saw international over the US, value over growth. We saw small caps-
Brad Rutan:
Small caps.
Nick Paul:
... Over large cap, and what happened? It lasted for all about four months, and then what happened? Generative AI showed up, saved the day for mega cap technology. If that hadn't happened, which is a big if, right? If generative AI hadn't happened, like it's hard to sit here with a straight face and say if that hadn't happened. It did happen, and it's game changing, but if that had not happened, two back to back years of plus 20% on the S&P 500 would not have happened, and we'd be sitting here having a very, very different conversation today about that trade, I think, being in place now for the better part of two years. So, it actually started, got a bit derailed by generative AI, but if you believe that maybe the enthusiasm around generative AI is a bit overdone, i.e. deep seek or new technologies, companies now starting to have second thoughts around how much capital they're going to put into that generative AI trade, I think that you kind of sit here today, perhaps that's a little bit overvalued, to say the least.
Brad Rutan:
So, I think what I'm hearing is this cycle, where international outperforms US could have started-
Jenine Garrelick:
Earlier.
Brad Rutan:
A couple of years ago, but we got it interrupted by-
Nick Paul:
Correct.
Brad Rutan:
... By this AI craze.
Jenine Garrelick:
That's interesting.
Nick Paul:
I think it did.
Brad Rutan:
All right. So, we showed the slide earlier that showed the US and international cycles of out-performance. Looking at today, looking at the data, the macro environment, is there any corollaries to another period of time, where international ended up outperforming US for an extended period of time, not just a year, but an actual extended international cycle?
Nick Paul:
So, that chart that you showed is great. I use that in a lot of my presentations, so if you think back to that chart and you look at the last time the blue lines were above the axis-
Brad Rutan:
When international was outperforming?
Nick Paul:
When international was outperforming. The last time we witnessed a sustained period of out-performance of international versus the US was kind of this period between 2000 and 2008, right? So, think just post.com up until the global financial crisis, so then the question becomes, are there any parallels that you can draw between that eight year period and where we find ourselves today? And no two periods are obviously ever alike, but I do think there's a number of interesting similarities.
So, the first one was, or the first one is, it was a very low return environment for US equities, so over that eight year period, US equities on an annualized basis averaged about 1.7%, and non-U.S was up 7 or 8%, so sort of normalized equity returns. Again, that's back to not pounding the table. What we've seen this year, when the S&P was at its lowest down 20%, and international is up, just call it 10%, that's not the picture that we're painting or I think is a realistic scenario, but I do feel like a low return environment for the US, low single, I don't know, pick a number, low single digit type return, and then non-US sort of normalized equity returns, up high single digits, is a real risk for heavily concentrated US investors.
Jenine Garrelick:
Yeah. I think that's a really great point, because people's memories are short.
Brad Rutan:
Right.
Jenine Garrelick:
And I think people have completely forgotten about that time period.
Nick Paul:
Yeah. So I mean, you've got just, we'll call out the MAG 7, right? It's 30% of the benchmark. It trades at sort of 29 times forward earnings. These are great companies. They're not going away. I use the comparison to the.com era. They're not eToys or pets.com.
Jenine Garrelick:
Right.
Nick Paul:
They're not going away. But multiples are lofty, by historical standards perhaps are warranted; however, if the enthusiasm around generative AI starts to wane multiples contract, you don't have a lot of multiple support at 29, 28 times, multiples contract, earnings start to slow a little bit. It's a big chunk of my portfolio. You could easily find yourself in that low return environment.
Brad Rutan:
I got just a quick visual.
Jenine Garrelick:
Wow.
Brad Rutan:
This shows the relationship between the starting PE of the S&P 500.
Jenine Garrelick:
Okay, hold on. Slow this down.
Brad Rutan:
Yes.
Jenine Garrelick:
Lots of dots.
Brad Rutan:
But I'm going to explain it for our people that can't see the charts too, is on the bottom axis is the PE ratio, so that red box is where we are today, and then all the dots on the vertical axis are where the returns were for the S&P, given that it's the 10-year chart, I believe?
Jenine Garrelick:
Bottom valuation.
Brad Rutan:
Right, and basically what it shows you is that, if you go out to the right in this chart, if you had a PE even higher than what we are today, most of the returns were negative, so it supports that thesis that, you can take it down, Eric, thank you, that a low return environment, I know he's working hard today.
Jenine Garrelick:
That was really quick.
Brad Rutan:
It was quick. Yeah.
Jenine Garrelick:
I really thought that the chart should be up a little longer.
Brad Rutan:
You want to keep it longer, okay.
Jenine Garrelick:
Just a little longer. It's a lot of dots.
Brad Rutan:
I'm going to explain it longer.
Jenine Garrelick:
That's okay.
Brad Rutan:
Yeah, so PEs are high with the risk that PEs drop, and also maybe they're over earning given tech and this generative AI.
Nick Paul:
Yeah. Again, it wouldn't take a lot, right? I mean, if you're trading at a 30 times multiple, right? And PEs are down 3 times, and you take a 10% hit from a valuation and earnings are up, even if they're up 10%, again, you're kind of putting yourselves in that low, single digit type return environment. It's the presentation we have is called starting points matter, because where we're starting from today is a very, very different environment than when we are coming out of the global financial crisis.
Brad Rutan:
So, small returns in US.
Nick Paul:
Yeah, so lower returns in the US. If you went back to that period of 2000 and 2008, if you looked at inflation interest rates, right? So, interest rates over that period, 10 years treasuries averaged 4.5%. Directionally, it was much different how we got there, but it was very stable. You had 4.5% treasuries, and you had 3.5% global inflation, sort of 1% real rates. It kind of looks and feels about where we are today. It probably looks and feels where we're going to be for the foreseeable future. We're not going back to zero inflation, negative interest rates, zero interest rates anytime soon, if ever again, and the reason that that's important, it's back to that first chart that you showed.
In that environment of higher inflation, higher interest rates, to a point, right? I think 1% real rates is a normal, healthy environment. Zero inflation zero rates is not. That's manufactured. It tends to help more cyclical areas of the marketplace, so what does well in that environment? Value does better in that environment. Banks do better, materials do better, energy companies do better, financial services do better, so it lends itself to more, and small cap too is more cyclical. So, that's the other similarity, was inflation interest rates, valuations. I promised I wouldn't hang my hat on valuations, but it's important. You'd have to go back to 2000 to find an entry point into international, as attractive as it is today. It trades at about a 36, 40% discount to the US. Again, you'd have to go back to 2000 to find an entry point.
Brad Rutan:
Which was the beginning of the last period.
Nick Paul:
Exactly.
Jenine Garrelick:
And t
Nick Paul:
Yeah, and then the other one is concentration. Again, you'd have to go back to 2000 to find concentration risk anywhere close to where it is today, so as you sort of look at that environment, and again, you have to understand that the technology companies today are not the technology companies that we all sort of live through, or some of us who are old enough, live through during the dot-com era, but multiples are not inexpensive. Again, if growth even slows a little bit, you could easily wake up and find yourself in that lower... so the point being is it's really about where is the relative opportunity, right? It's back to this idea that diversification, which hasn't worked for the last 15 years, I think because of all of the things we just talked about, it's going to be incredibly important for investors going forward.
Brad Rutan:
Can you pull up the last slide for today? And this gets at that low return environment that normally, over a rolling 10-year period, this goes back to 1970, when the S&P has a low return environment, I think we' define that as less than six, international has outperformed the US 100 percent of the time on a rolling 10-year period. It's when returns are higher that it's more 50/50. Low return environment, the valuation discount, the inflation environment, the rate environment, all very similar to 2000. Last question, and then we have a couple questions that came in. What are you excited about? I mean, obviously, there's got to be areas in the world, sectors and industries where you're personally excited, the team's excited that we're actively investing in.
Nick Paul:
Yeah.
Brad Rutan:
Japan, can we start with Japan?
Nick Paul:
Yeah, sure.
Brad Rutan:
Because a lot of people know the corporate governance story, that companies are having to return more shareholder value to shareholders.
Jenine Garrelick:
Just a little advice. When we ask the guest a question, allow them to answer.
Brad Rutan:
Appreciate that.
Nick Paul:
That's okay.
Brad Rutan:
What are you excited about?
Nick Paul:
I can leave.
Brad Rutan:
Is that in my notepad?
Jenine Garrelick:
Let's talk Japan.
Nick Paul:
But it is his show, by the way, right? It's not my show.
Jenine Garrelick:
So I'm told.
Brad Rutan:
Man, at least I take on the show. You're both off the show.
Jenine Garrelick:
Are you excited about Japan?
Nick Paul:
Do you like Japan? Yeah.
Brad Rutan:
There you go.
Nick Paul:
Well, I would say, generally speaking, we're finding a lot of opportunities in Japan, for the reasons that Brad just made, around the enhancements to corporate governance in Japan, which has been a big headwind for many, many years. But it's not just that. I mean, the fact that we have investment offices in these local markets in Tokyo, for example, you can uncover all kinds of very unique opportunities. I'll give you a real quick example. In Japan, generally speaking, what you'll see is that we tend to like IT services companies within Japan. The reason is that, believe it or not, Japan, relative to other developed markets is still a number of years behind the curve and sort of the whole digital transformation and companies, particularly small and medium businesses moving to the cloud. So, you'll find a lot of, there tend to be more smaller cap in nature, some focused on enterprises. Some are larger cap, but there's a lot of smaller cap IT services companies. Think about them as sort of consulting companies that are helping all of these businesses continue or move towards that digital transformation and the transition to the cloud.
Jenine Garrelick:
Why are they behind? That is really shocking.
Nick Paul:
Yeah. This has not been the investment you've seen, particularly within the US and other markets.
Brad Rutan:
Before we get to the two questions, do you mind if I ask him about Europe too?
Jenine Garrelick:
As long as you let them answer.
Brad Rutan:
Can you tell us about Europe? What do you seeing in Europe that you like?
Nick Paul:
Yeah. I mean, we touched on sort of the macro picture, that it seems that European companies, or I would say maybe European governments, are sort of waking up to the fact that there's going to have to be more investment on their part. There's going to have to be less regulation overall if they want those economies to grow, but generally speaking, I don't think, I wouldn't put it on any one particular country, but from sort of a top-down standpoint, industry standpoint, I mean, it's probably been covered before. We're finding good opportunities with electrical equipment companies, so think about making the world more environmentally friendly, the electrification of everything, making buildings, warehouses, businesses much more efficient. Think about data centers, they play into that as well. That's an area of opportunity.
Brad Rutan:
It's probably more important there too, because electricity costs there is so much higher, just to limit the-
Nick Paul:
Well, and that's the other thing too. I mean, you could see if there is-
Jenine Garrelick:
That's a good point.
Nick Paul:
... Back to Europe, if we ultimately get to some sort of a resolution in Ukraine, energy prices are already down. That could also potentially bring energy prices lower, which would be a big benefit to European companies as well. On the financial side, most people would probably would not have guessed this, but if you went back to the beginning of 2022, European banks have actually outperformed the Mag 7.
Jenine Garrelick:
Wow.
Nick Paul:
So, European banks have done exceptionally, exceptionally well.
Brad Rutan:
Wouldn't have guessed that either.
Jenine Garrelick:
Nope.
Nick Paul:
Capital markets, so think about exchanges or even some of the wealth management firms within Europe, I mean, there's interesting opportunities in the UK on the infrastructure side. You talked about aerospace and defense.
Brad Rutan:
Right.
Nick Paul:
So again, once you get outside of tech, where the US just dominates, if you believe that there's investments and there's capital flowing into these other areas, then the world just opens up to you, where with tech, I mean, you look at Europe and you look at their exposure to technology, it's maybe a couple percentage points. It's really non-existent.
Brad Rutan:
Right.
Nick Paul:
We dominate tech, but as these other areas, as there starts to be investment and interest, that's when you really want to broaden out your exposure and diversify.
Jenine Garrelick:
That's great.
Brad Rutan:
Want to do questions?
Jenine Garrelick:
Two quick questions?
Brad Rutan:
Two questions, yeah.
Jenine Garrelick:
Okay. I see one that came in. What is the most attractive industry in the large cap value space?
Brad Rutan:
International large cap value space?
Jenine Garrelick:
International, yes.
Nick Paul:
Oh, in the international large cap? I would say it's a lot of the things that we just talked about within Europe, so electrical equipment companies, we're finding good opportunities there. Capital markets is another one, we're finding good opportunities. Machinery companies within the industrial sector, so I would say it's more broad-based. I do think that, maybe just to take a step back, if you were to ask me, "Where's a very unique opportunity in international?" Starting from zero, I think anything international would be a good place to start, but if you had to kind of put me in a corner, international large cap value as an asset class has been completely out of favor and unloved for many, many, many, many years. You think you say international, and people run out the doors? You say value on top of that, and people really run out of the doors, but it's actually, I think it's, generally speaking, a very good compliment to US equity exposure, in that US equity, again, you have to remember is a growth asset class.
Brad Rutan:
Right.
Nick Paul:
So, you don't need more growth.
Jenine Garrelick:
Right.
Nick Paul:
You got plenty of growth in your US exposure. What you probably don't have is value, so here's an asset class that trades at about 11 times forward earnings. Consensus, long-term earnings estimates are kind of high single digits, throws off close to 4.5% yield from a dividend standpoint, and oh, by the way, relative to core international or international growth, it's much less correlated to your US equity exposure, so it kind of gives you a bigger bang for your buck on diversification, and again, with the yield and the earnings expectations, I just think it's a very interesting asset class that has not been looked at in decades probably.
Jenine Garrelick:
So, the second question and last question, we're going to throw you away completely opposite, emerging markets?
Nick Paul:
Yeah. I always kind of joke with emerging markets, tell me what the dollar does and I'll tell you what emerging markets will do, right? Because historically, a stronger dollar has been a massive headwind for emerging markets, and a weaker dollar has been a big catalyst for emerging markets to do well. I think there's tremendous opportunity within emerging markets. I think the weaker dollar here, more recently, has helped. We'll see what happens to the dollar in the future. I could give you three or four reasons it goes higher. I give you three or four reasons that it goes lower, but if you looked at emerging markets last year, emerging markets last year, I know S&P was up 20%, but you have to kind of take that for what it is. It's up 8% last year. It had a good year last year. It's up 6%, which is a decent return this year. China's the big wild card, right? It's a third of that benchmark, but China's up 12% this year, understanding that China, there are issues that China is dealing with, whether it's the property market, whether it's the lack of-
Brad Rutan:
Consumption.
Nick Paul:
... Consumption and consumer spending within China. Throw tariffs on top of that, but you could also paint a picture where the Chinese government has already taken steps from a fiscal standpoint to prop up that economy. There's probably much more they can do there, from both the monetary and the fiscal side, and on top of that, if we get to some agreement or deal around tariffs, which I think is probably, how we get there could be messy, but I think we get there. That could all be positive, so it's really, again, it's all up to the individual to decide, but I do think that it's just an additional layer of diversification. It's been out of favor for a long, long time, and I do think you probably want to have some exposure to emerging markets.
Brad Rutan:
Without pounding his hand on the table, he seems to have given us the answers that we need.
Jenine Garrelick:
Plenty of reasons for international. Plenty.
Brad Rutan:
You want to close this out?
Jenine Garrelick:
You want me to?
Brad Rutan:
Yeah.
Jenine Garrelick:
Are you asking me?
Brad Rutan:
I'm asking you if you could.
Jenine Garrelick:
Then, you're going to just close it out for me?
Brad Rutan:
I'm going to stay here and not say a word.
Jenine Garrelick:
Well, yes, and I realize we did go over time, but there was so much to talk about. I appreciate everybody joining us. Thank you so much. This was great. A lot to think about, and we always give a plug. This time we're going to give a different plug. We're going to plug our website, so if you want to get more information about the international and MFS's views, go to MFS.com. How do you like that?
Brad Rutan:
Thanks for joining us.
Jenine Garrelick:
Thank you. Have a good one.
Brad Rutan:
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Disclosure:
The views expressed in this presentation are those of the presenter. These views should not be relied upon as investment advice, as securities recommendations, or as an indication of trading intent on behalf of any other MFS investment product. MFS does not provide legal, tax, or accounting advice. Clients of MFS should obtain their own independent tax and legal advice based on their particular circumstances.
Past performance is no guarantee of future results. No forecasts can be guaranteed.
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