2015 may be a year when global diversification is appreciated once again.  The world’s economies and central bank policies are diverging, creating conditions for widely varying results.  Relative valuations among countries may be a reliable guide to future results.

Global Diversification Could be 2015’s Winner.  2015 is likely to be a year when global diversification is appreciated more than the past several years, according to Liz Ann Sonders of Charles Schwab & Co., Inc.   That’s because the world’s economies and central bank policies are diverging. In this environment U.S. multi-national corporate profits are starting to decelerate; consequently, it will be difficult for corporate earnings to lift U.S. stock market averages.

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Ditch the Good; Buy the Bad and the Ugly.  Investing where the valuations are lower has been a far better strategy historically than investing in what presently looks the best, according to Ben Inker of GMO.  Despite all the worrying features of the economic environment outside of the U.S., he believes that investing in the various bad and ugly places in the world is going to wind up far more rewarding.  Investing in the U.S.—just because it is expected to have strong economic growth—is a bad idea for the long run.  It is growth that comes as a surprise that matters—not growth that “everybody knows” is going to happen.  Expectations of “good news” and “bad news” already are baked into prices.  Valuation—cheap vs. expensive—is a more reliable guide to future results.

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Selecting Value Amid Volatility.  Russ Koesterich of BlackRock shares similar sentiments.  It makes sense to look outside the U.S. for value.  European equities are benefiting from the European Central Bank’s quantitative easing, as well as stabilization in economic indicators and improvements in lending.

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J. Mark Nickell & Co.

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