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Investing In A World Of Opportunity

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Investing In A World Of Opportunity

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Investing In A World Of Opportunity

  1. 1. Title Page: Inv estin g in a W orld of Opportu nity Benefits of Global Investing Special Risks of Global Investing How to Invest Globally | NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE | Today we are going to talk about investing in markets outside the United States. In the next 15 minutes, we’ll discuss: • The benefits of global investing • The special risks of global investing • And the steps you can take to invest globally in your portfolio 1
  2. 2. Benefits of global investing Don’t World market capitalization 4% 3% Ignore the Asia Pacific Canada (ex-Japan) 8% United Other Half Kingdom 12% 50% Japan United States 23% Europe (ex-United Kingdom) Sour ce: Ibbotson Pr esentation Mater ials. ©2005 Ibbotson Associates, Inc. All r ights r eser ved. Used with per mission. Capitalization calculated at year -end 2004. Estimates ar e not guar anteed. This is for illustr ative pur poses only and not indicative of any investment. 2 Thirty years ago, the United States accounted for more than 60% of the world’s stock market capitalization. • That’s no longer true. • If you ignore foreign stock markets today, you ignore one half of the world because foreign stock markets now account for 50% of total world stock market capitalization. 2
  3. 3. Benefits of global investing Foreign—or Familiar? Bayer Honda Nokia L’Oréal Nestlé 3 If you ignore foreign stock markets, you could miss out on market leaders—and household names—in key industries such as these healthcare, telecommunications, automotive and consumer products companies. 3
  4. 4. Benefits of global investing Access World Economies and GDP Growth 10 to the 8 6 4 Fastest 2 0 -2 Growing -4 -6 -8 Economies -10 -12 2001 2002 2003 2004 2005 Sour ces: 2001—2004, Wor ld Bank Gr oup, Argentina Ireland Turkey Wor ld Development Indicator s Database; China Russia United States 2005 estimates: Inter national Monetar y India Thailand Fund, World Economic Outlook, Apr il 2005. 4 The U.S. economy has been growing at a solid pace, as measured by gross domestic product or GDP—a common measure of the goods and services produced by an economy. • But as you can see from this table, U.S. GDP has not grown nearly as fast as in many foreign economies. • Why does economic growth matter? Because strong financial performance over the long term has historically been the result of steady economic growth. 4
  5. 5. Benefits of global investing Annual returns of developed world’s Versus U.S. Greater best-performing stock markets stock market 2004 Growth Austr ia 72% Nor way 55% Gr eece 46% Belgium 45% United States 11% Potential 2003 Gr eece Sweden Ger many Spain United States 69% 65% 64% 59% 29% 2002 New Zealand Austr ia Austr alia Italy United States 26% 17% -0.3% -6% -22% 2001 New Zealand Austr alia Ir eland Austr ia United States 9% 2% -3% -5% -12% Sour ce: Ibbotson Pr esentation Mater ials. ©2005 Ibbotson Associates, Inc. All r ights r eser ved. Used with per mission. Retur ns expr essed in U.S. dollar s. For eign r etur ns by countr y—each countr y’s Mor gan Stanley Capital Inter national Index. U.S. r etur ns—Standar d & Poor’s 500 Index. This is for illustr ative pur poses only and not indicative of any investment. It is not possible to invest dir ectly in an index. Inter national investing involves cer tain r isks, such as cur r ency fluctuations, economic and political instability, and potential for eign taxation. These r isks ar e heightened for investments in emer ging mar ket countr ies. Past per for mance is no guar antee of futur e r esults. 5 The U.S. stock market has a solid long-term performance track record. However, it is rarely the top-performing market in the world. 5
  6. 6. Benefits of global investing Greater Diversification with a Global Portfolio Growth of $1,000 December 1969—September 2005 Ending Average Wealth Return Global portfolio $57,973 12.03% European stocks $52,889 11.74% U.S. stocks $43,104 11.10% Pacific stocks $41,520 10.99% Sour ce: Thomson Financial, calculated by BlackRock, 2005. This infor mation is hypothetical and for illustr ative pur poses only. It does not r eflect any par ticular investment. Global por tfolio assumes r ebalancing ever y 12 months. U.S. stocks—Standar d & Poor’s 500 Index. Eur opean stocks—M SCI Eur ope Index. Pacific stocks—M SCI Pacific Index. Past per for mance does not guar antee futur e r esults. It is not possible to invest dir ectly in an index. 6 • A global portfolio consisting of U.S. and foreign stocks outperformed a domestic portfolio of U.S. stocks for the period from December 1969 through September 2005. • The performance difference was by a considerable margin. 6
  7. 7. Benefits of global investing International investments can enhance domestic portfolios The International regions 1970—2004 17% Global portfolios Japanese Best of 16% stocks Domestic portfolios U.K. stocks 15% European Pacific 14% Both stocks Return stocks 13% U.S. stocks 12% Canadian stocks Worlds 11% 10% U.S. bonds 9% 5% 10% 15% 20% 25% 30% 35% 40% Risk Sour ce: Ibbotson Pr esentation Mater ials. ©2005 Ibbotson Associates, Inc. All r ights r eser ved. Used with per mission. Data in U.S. dollar s. Risk is measur ed by standar d deviation. Risk and r etur n ar e based on 1970–2004 data. U.S. Bonds—20-year U.S. gover nment bond; U.S. Stocks—Standar d & Poor ’s 500 Index; Canadian Stocks—M or gan Stanley Capital Inter national Canada Index; Eur opean Stocks—M or gan Stanley Capital Inter national Eur ope ex-U.K. Index; U.K. Stocks—M or gan Stanley Capital Inter national U.K. Index; Japanese Stocks—M or gan Stanley Capital Inter national Japan Index; Pacific Stocks—Mor gan Stanley Capital Inter national Pacific ex-Japan Index. It is not possible to invest dir ectly in an index. Inter national investing involves cer tain r isks, such as cur r ency fluctuations, economic and political instability, and potential for eign taxation. These r isks ar e heightened for investments in emer ging mar ket countr ies. Past per for mance is no guar antee of futur e r esults. 7 • Foreign stocks are generally considered more risky than U.S. stocks. • As this chart illustrates, for the period under examination, an investor could have achieved higher returns at given levels of risk by including stocks from other countries and regions in a domestic portfolio. • This improvement in the risk/return trade-off was due to the low correlation of the international asset classes with the U.S. asset classes. As a result, points on the global frontier—the dark line that runs from the lowest-performing and least risky market and asset class to the highest-performing and most risky market—offered higher returns per unit of risk than points on the domestic frontier. The information presented herein is for illustrative purposes only and not indicative of any investment. The data assumes reinvestment of all income and does not account for taxes or transaction costs. All values are expressed in U.S. dollars. Diversification does not eliminate the risk of experiencing investment losses. Risk is measured by standard deviation. Standard deviation measures the fluctuation of returns around the arithmetic average return of the investment. The higher the standard deviation, the greater the variability (and thus risk) of the investment returns. Return is measured by arithmetic mean return. Risk and return are based on annual data over the period 1970-2003. The portfolios presented in this image are based on modern portfolio theory. Government bonds are guaranteed by the full faith and credit of the United States government as to the timely payment of principal and interest. Bonds in a portfolio are typically intended to provide income and/or diversification. U.S. government bonds may be exempt from state taxes, and income is taxed as ordinary income in the year received. With government bonds, the investor is a creditor of the government. Stocks are not guaranteed and have been more volatile than bonds. International stocks have been more volatile than domestic stocks. Returns and principal invested in stocks are not guaranteed. Stocks provide ownership in corporations that intend to provide growth and/or current income. Capital gains and dividends may be taxed in the year and country earned. International investments involve special risks such as fluctuations in currency, foreign taxation, economic and political risks, and differences in accounting and financial standards. It is not possible to invest directly in an index. Past performance is no guarantee of future results. 7
  8. 8. Understanding General Risks Special risks of global investing Understanding General Risks • Less stringent standards and practices • Heightened currency fluctuation • Heightened political risks 8 Investing in foreign markets carries special general risks. • Reporting practices and accounting standards are not as stringent outside the U.S. • Currency fluctuations heighten risk because the return on an investment depends on its actual performance and the performance of the currency. A declining dollar enhances return; a rising dollar detracts from its return. • In addition, there are political risks that can have a heightened impact in foreign markets. 8
  9. 9. Special risks of global investing Understanding Developed Markets • Rules, business standards and practices similar to the United States • Low–to–moderate economic growth • Generally less volatile returns than emerging markets 9 Some foreign markets are more risky than others. Established markets in stable economies are known as developed markets. • Their rules, business standards and practices tend to be more like those in the United States • Their economic growth rates tend to be low to moderate. • And, their returns are generally less volatile than emerging markets. 9
  10. 10. Special risks of global investing Understanding Emerging Markets • Less established markets and more volatile returns • Relatively high but less stable economic growth • Lower standards of living • Less stringent rules and regulations 10 • Emerging nations tend to have less-established markets and more volatile stock market returns. • Their economic growth rates tend to be higher than in developed markets, but their economies also tend to be less stable. • They have lower standards of living and less stringent rules and regulations. 10
  11. 11. Th in kin g Lon g Term Special risks of global investing Think Long Term Growth of $1,000 invested in the M SCI EAFE Index, 12/31/69—9/30/05 $43,428 Sour ce: Lipper data, calculated by BlackRock, 2005. This infor mation is hypothetical and for illustr ative pur poses only. It does not r eflect any par ticular investment. It is not possible to invest dir ectly in an index. Past per for mance does not guar antee futur e r esults. 11 One way to ease the added risks of investing in foreign markets is to think long term. Despite volatility, long-term returns from foreign markets have been strong. • As this slide shows, a $1,000 investment in foreign markets that tracked the Morgan Stanley Capital International EAFE Index, grew to more than $43,000 for the period between December 1969 and September 2005. 11
  12. 12. Mutual F unds Make It Easy How to invest globally Mutual Funds Make It Easy • Professional research and management • Lower transaction costs • Returns denominated in U.S. dollars • Foreign tax payment simplified • Investment information in English 12 Investing in foreign markets through a mutual fund offers professional research and management. With a fund as your go-between, you don’t have to deal with foreign currencies, foreign taxes or investment information written in a foreign language because the fund handles those matters. Transactions are likely to be less costly and simpler. 12
  13. 13. How to invest globally Three Ways to Go Global 1 Global or worldwide funds 2 Foreign or international funds 3 Country or region-specific funds 13 The most conservative way to gain exposure to foreign markets is with a fund that invests globally, in the United States as well as other major markets. Foreign or international funds invest exclusively in markets outside the United States. Some funds target a specific country or region. These funds tend to be more risky. 13
  14. 14. Indices used in this seminar Indices used in this seminar The Morgan Stanley Capital International (MSCI) EAFE® Index represents international equity performance and is a capitalization weighted index based on securities from Europe, Australasia and the Far East. The Standard & Poor’s 500® Index is composed of selected stocks, most of which are listed on the New York Stock Exchange, and is focused on the large cap segment of the market, with over 80% coverage of U.S. equities. Equities by country are represented by the specific M SCI country index (e.g., M SCI Canada IndexSM , M SCI Greece IndexSM ) for each respective country. Each index is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in a particular country. (Slide 5) The MSCI Europe IndexSM is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe. As of M ay 2005, the M SCI Europe Index consisted of the following 16 developed market country indices: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. The MSCI Pacific Index SM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the Pacific region. As of M ay 2005, the M SCI Pacific Index consisted of the following five developed market countries: Australia, Hong Kong, Japan, New Zealand and Singapore. 14 Your financial professional can evaluate your current asset allocation and discuss where the rest of the world fits into your portfolio. 14
  15. 15. How to invest globally Going Global, Getting Started and can help 800-882-0052 | www.blackrock.com You should consider the investment objectives, risks, charges and expenses of the fund(s) carefully before investing. For complete information about any of the BlackRock funds, including objectives, risks, charges and expenses, you may obtain a prospectus from BlackRock Distributors, Inc., 760 Moore Road, King of Prussia, PA 19406. 800-882-0052. Please read the prospectus carefully before you invest or send money. BlackRock Distr ibutor s, Inc. is the distr ibutor of 50 mutual funds. Print Seminar and Speaker Notes | NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE | 15 Your financial professional can evaluate your current asset allocation and discuss where the rest of the world fits into your portfolio. 15

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