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 - Get Report) 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 - Get Report) . 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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