There are two types of people in the world: those who know about the Battle of Cannae and those who do not. And there are two types of the former: those who are big fans of military history and those who took Advanced Latin in high school (we are in the latter camp).

The Battle of Cannae was where Hannibal, the great Carthaginian commander during the Second Punic War (218-201 B.C.), outmaneuvered a much larger Roman army in one of the greatest surprise tactical defeats in military history. Hannibal devised the "double-envelopment" pincer move where his army formed a concave crescent and contained the approaching Roman army on each flank while other regiments attacked from behind to keep Roman reinforcements at bay. The Romans were quickly surrounded and trapped by the semicircle of Carthaginian troops.

Defeat was swift.

This maneuver reminds us of what is going on with global equity returns. Over the past seven years, U.S. equities have dominated the "double-envelopment" of:

  1. Return rankings, and
  2. The allocation of investors' dollars in terms of fund flows, meaning the amount of money investors have been pouring into U.S. equity mutual funds and exchange traded funds (ETF).

Up until recently, international equities (stocks in both developed and developing countries outside the U.S.) have underperformed U.S. equities in terms of both performance and fund flows.

But that seems to be changing this year.

Year-to-date through August 25th, the MSCI All Country World ex U.S. Index (non-U.S. developed and developing market stocks) is up 19.1% versus the Russell 3000 Index (large and small capitalization U.S. stocks) return of only 9.7%:

It is the same story in year-to-date fund flows through August 23rd where funds flowing into non-U.S. equity investments are close to $100 billion so far versus a net OUTFLOW of dollars from U.S. equity investments:

While the Battle of Cannae was only one battle of many in the Second Punic War, the recent outperformance and fund flows of international equities may not continue and is impossible to predict accurately. However our study of market history suggests regional performance dominance comes and goes in cycles (prior to the recent outperformance of U.S. equities, international equities outperformed U.S. equities from 2001 through 2010), and turning points are marked by material differences in fund flows ... perhaps this is the start to something bigger.


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