Finally.

The Gala apple is now poised to be the most popular American apple, beating out the Red Delicious apple (an inferior apple to both the Gala and, our favorite, the Honey Crisp).

The USApple Association — "the voice of the U.S. apple industry," which represents 7,500 apple growers and 400 companies affiliated with apples and apple products — made it official last week at the organization's 2018 Annual Crop Outlook & Marketing Conference* in Chicago. Measured in 42 pound units, Gala production is estimated to jump from 49.5 million units in 2017 to 52.4 million in 2018, edging out Red Delicious, whose production is expected to decrease from 57.9 million in 2017 to 51.7 million in 2018.

USApple had this to say about this year's champion: "Gala, which originated in New Zealand in the 1930s, has increased in popularity because consumers like its taste, texture and sweetness; growers like the variety because of its relative ease of growing and productivity."

And this is big news because the Red Delicious apple had been the most popular apple in the U.S. for more than 50 years!

The long-term dominance of the Red Delicious apple reminds us of the dominance of U.S. equity returns in the league tables for global equities. Other than last year, when both foreign-developed and emerging- market equities beat out U.S. equities, U.S. equities have dominated since 2009.

So far this year, it seems to be the case as well (chart above is through June 30, 2018). Though we recently hailed the benefits of investing in emerging markets over the long-term, the asset class' return this year has been a dud after the strong performance last year, down about 7%.

What the above chart does not show is the most recent peak-to-trough decline of about 20% between January and August of this year:

It’s clear that emerging markets are ridiculously volatile, even by stock market standards. Ben Carlson agrees in two of his recent, well-researched posts (here and here) on his A Wealth of Common Sense blog:

"Since 1994, the S&P 500 has experienced 7 corrections and 4 bear markets while emerging markets have been hit with 11 corrections and 13 different bear markets. This means the combination of corrections and bear markets in emerging markets have outnumbered those in the U.S. by a factor of more than 2-to-1."

He also answers the most pressing question: what happens AFTER emerging markets decline by 20%. Using data going back to 1994, he calculates the following one-year, three-year and five-year returns an investor would get after the decline:

 

Not bad!

His best conclusion supports our portfolio diversification approach to investing: adding a volatile asset class that is uncorrelated to U.S. equities can actually add value from an overall portfolio perspective. The following table shows total returns for emerging market and U.S. equities by different time periods:

Notice how one asset class outperforms ("zigs") while the other underperforms ("zags") but the overall long-term returns are similar. That is the benefit of portfolio diversification. How about them apples!

*In case you are wondering about the other grocery store staples: USApple’s 2018 production forecast, as reported in its annual Production & Utilization Analysis, is as follows:

  1. Gala
  2. Red Delicious
  3. Granny Smith
  4. Fuji
  5. Honeycrisp

Contact Russell Moenich to learn more about this topic.
330.255.4330 | rmoenich@sequoia-financial.com

 

This material is for informational purposes only and is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product.  The opinions expressed do not necessarily reflect those of author and are subject to change without notice.  Diversification cannot assure profit or guarantee against loss. There is no guarantee that any investment will achieve its objectives, generate positive returns, or avoid losses. Sequoia Financial Advisors, LLC makes no representations or warranties with respect to the accuracy, reliability, or utility of information obtained from third-parties. Certain assumptions may have been made by these sources in compiling such information, and changes to assumptions may have material impact on the information presented in these materials.  Investment advisory services offered through Sequoia Financial Advisors, LLC, an SEC Registered Investment Advisor. Registration as an investment advisor does not imply a certain level of skill or training.