It may be time to prune your U.S. stock portfolio in favor of emerging market funds. The benchmark iShares MSCI Emerging Markets ETF (EEM) is down close to 30 percent in the past five years compared to a gain of almost 60 percent for the S&P 500 index. Emerging market stocks have started to turn the tide over the course of 2016, however. Year-to-date the EEM is up 4.5 percent, beating the S&P's return by over two full percentage points. 'If you look at valuations right now the U.S. market PE (price-to-earnings) is about 24 times while emerging markets are only selling at about 18.5 times so from a valuation and cyclicality perspective it may be a time to reallocate to emerging markets,' said Kevin Cooper, head of portfolio research at AMG Funds (AMG) . Cooper added that moving into foreign stocks may be a prudent move anyway considering the fact that most U.S. investors are under-allocated to non-U.S. assets. Based on mutual fund investments, only 26 percent of U.S. investors are investing internationally, despite the fact that 56 percent of world market capitalization is outside the United States.
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