In January of this year, we looked at the relative performance of the United States versus the rest of the world (ROW). At the time, ROW was making up lost ground relative to the US, but that didn’t last long. Through the first three quarters of 2021, the US (SPDR S&P 500 ETF-SPY) picked up steam once again and has significantly outpaced both the rest of the world (Vanguard FTSE All-World ex-US ETF- VEU) and emerging markets (iShares MSCI Emerging Markets ETF- EEM). Emerging markets have been the underperformers of the group while the US has led. Although EEM outperformed at the beginning of 2021, the index has since moved lower while the US trudged higher right up through early September. YTD through the end of Q3, SPY has outperformed EEM by 19.5 percentage points, which ranks as the second-widest spread between the two ETFs since EEM started trading in 2004. While not to the same degree, the US has also notably outperformed the rest of the world as well with a performance gap of 12.4 percentage points.
Over the last 17 years, Q4 performance has been mixed after the performance spread between SPY and EEM during the first three quarters of the year was in the double digits. Since 2004, there have been five prior occurrences, and in three of those years, SPY continued to outperform in Q4 while it lagged twice. Over the last decade, EEM has only outperformed SPY two times through the end of Q3 (2016 and 2017), and this year is the fourth in a row where SPY outperformed EEM.
Similar to EEM, SPY has also steadily outperformed VEU in the first three quarters of the year with outperformance in 11 of the last 14 years. Interestingly, in the three years where SPY lagged VEU, it outperformed in Q4 all three times. Like this year, SPY outperformed VEU by double-digit percentages in the first three quarters of the year only three other times since 2008. The last two times there was a positive double-digit spread (2018 and 2020), VEU outperformed for the remainder of the year.
Investors often look to play trends in the first three quarters of the year for a continuation through Q4 or a reversion to the mean. However, in terms of big performance gaps between US stocks and both international and emerging markets in the first three quarters of the year, like the analysis we highlighted last week with sectors, historically there’s been no discernible trend of either a continuation or reversal of that trend in Q4. Click here to view Bespoke’s premium membership options.