Howard Gold's No-Nonsense Investing: If you wish to personal worldwide shares, put money into these three international locations as a substitute of China

This weekend, millions of viewers will see one of America's most famous entrepreneurs, Elon Musk, co-founder and CEO of Tesla, host Saturday Night Live.

China's best-known entrepreneur, Jack Ma, co-founder of Alibaba Group, has only appeared in public once in the past five months after the all-powerful Chinese government launched a regulatory offensive against its financial services firm Ant Group.

In short, this shows you why, for all its troubles, the US is a great place to invest, while China is a bad place for all of its strengths: the US encourages innovation while China shatters it.

This column has argued for years that investors should invest most of their money in US stocks and avoid emerging markets, of which Chinese stocks make up around 40%. US stocks have clearly outperformed emerging and developed markets over the past 12 years, and this is likely to continue as we emerge strong economically from the COVID-19 pandemic.

Yet for years US investors have drawn money from superior US equity funds while shoveling dollars into lagging international and emerging market funds. According to Morningstar, investors pulled $ 241.2 billion from US equity funds in the past year alone, nearly four times as much as from international equity funds.

It is okay to want international diversification of your stock holdings. If China and emerging economies aren't, and Europe and Japan are stagnating, where should you look?

Three countries – Australia, New Zealand and South Africa – have very long track records of stock performance as good or better than the US, with a similar risk profile. They each have dedicated ETFs that you can buy as well. However, with annual management fees of more than 0.5%, they are more expensive than, for example, the US-focused Vanguard Total Market Index ETF
+ 0.51%,
that only costs 0.03%.

Three of the world's leading researchers on asset class returns have maintained a database of 32 markets in different countries, some of which date back to 1900. Elroy Dimson, Paul Marsh and Mike Staunton developed the database at London Business School and updates it annually for Credit Suisse's Global Investment Returns Yearbook. The table below shows their data on these three outstanding markets as of the end of 2020.

For the entire 121 year period from 1900 to 2020, South Africa was the world's leading stock market (in local currency) with an average annual return of 7.1%. Australia ranks second with an annual return of 6.8%, while the US comes in third with an annual return of 6.6%, displacing New Zealand's 6.4%. And the performance of all three markets has remained constant over the last 20 and 50 years, in which South Africa has done particularly well despite the country being hit by political turmoil.

In a world without minerals, South Africa is a treasure trove – gold and diamonds of course, but also manganese, platinum, coal and iron ore. However, the market is balanced between technology (30% of market cap), finance (28%) and materials (22%). Although South Africa is still an emerging market, the level of risk corresponds to that of the industrialized countries: the standard deviation, a common measure of volatility, is 21.8% over the entire period of 121 years and is thus only slightly above the 19.9% ​​in the USA. The iShares MSCI South Africa ETF
+ 2.32%
had a total return of 81.9% for the 12 months ended March 31.

Australia has long been known as "The Lucky Country" and hadn't experienced a recession in almost 30 years before the COVID hit. This was avoided during the financial crisis due to trade with China, which accounts for 11% of Australia's GDP (up from around 4% in the US).

It is among the world's three largest exporters of iron ore, coal, zinc, gold, uranium and aluminum. Financial data is the largest component of the iShares MSCI Australia ETF
+ 0.15%,
with 35% exposure, followed by basic materials (20%) and healthcare (10%).

A huge potential risk: mounting trade tensions with China could damage the Australian economy, but this country's centuries-old track record suggests it would find a way to deal with it, too.

Another developed island nation in the Asia-Pacific region, New Zealand is much smaller than Australia but has posted strong stock returns. The Heritage Foundation rates its economy as the second-freest in the world (Australia ranks third), and it has emerged almost unscathed from COVID. The iShares MSCI New Zealand ETF
is surprisingly diversified, with nearly three-quarters of its holdings in healthcare, utilities, industrial and communications.

I could easily see how to get your international equity exposure from these three countries, but you could also explore the Global X FTSE Nordic Region ETF
This includes the most innovative and best performing economies in Europe or the Columbia Emerging Markets Core ex-China ETF
+ 1.65%,
This allows you to invest in emerging markets without China. I don't own any of these international ETFs, but I can buy some in the coming weeks.

Howard Gold is a MarketWatch columnist. Follow him on Twitter @ howardrgold1. The only security mentioned in this column is VTI.

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