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ETF Specialist

Flows Into Foreign Equity Funds Remain Strong

Investor rebalancing is a contributor.

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In the seven years since the 2008 financial crisis, correlations between U.S. equities and foreign equities have trended back to historical averages. Immediately following the crisis, the three-year correlations of U.S. equities and foreign equities hovered around 90% until 2013. More recently, correlations between U.S. equities and MSCI EAFE Index have fallen to around 70%, and correlations between U.S. equities and the MSCI Emerging Markets Index are now at around 45%. These trends help remind us that international equities do provide diversification.

The standard asset allocation for a moderate-risk investor is a 60% equity/40% bond portfolio. Within the equity portion, the recommended weights, on average, are as follows: U.S. equities at 70%, international developed equities at 23%, and emerging markets at 7%.

Patricia Oey does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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