This document discusses the benefits of international investing through diversification and exposure to higher growth rates abroad. It notes that international markets can experience different returns than the US market, potentially lowering overall portfolio risk. While international investing brings additional risks, these can be reduced through a diversified portfolio that includes both developed and emerging markets. The document advocates for a globally diversified portfolio for most investors.
It's not getting any easier to invest, with the US economy growing quickly in the midst of trade wars and rising interest rates. The rest of the world is performing more modestly, and is more worried by US developments than the Americans.
Australia's doing better than we realise, with expansion of our resource exports, and population growth supportive of our economy, if not our stock market.
The easy gains in markets are past - we are confronted by rising world interest rates in conjunction with already elevated asset prices. Managing risk and avoiding complacency will be key.
Growth stocks are most expensive relative to their net present value, while value stocks have been depressed in relative terms. Markets are overpricing growth and underpricing stability.
Bip connected risks investing in a divergent worldSemalytix
A.T. Kearney issued its first Foreign Direct Investment (FDI) Confidence Index® in June 1998, in the shadow of the 1997 Asian financial crisis. Despite jitters following economic collapse in Southeast Asia, businesses saw investment opportunity in the Americas, Western Europe, Russia, and East Asia, and the United States took first place. Here we are in 2015, with the United States first place in the Index again and business executives still tormented by a recent global financial crisis. Today’s investors must account for divergent monetary policies in large developed economies, alongside a surging U.S. dollar and a sustained commodity super-slump. Developed and developing markets alike are moving in unexpected ways.
Yet, amid growing divergence and multiplying risks, there is genuine excitement in the global business community. It starts with the growing belief that the combined strength of the U.S. and Chinese economies—first and second in this year’s FDI Confidence Index—can buoy the world economy while others get back on track. And there is genuine dynamism elsewhere if you know where to look. Numerous countries are opening up long-guarded sectors to privatization and foreign investment. Downturns and fluctuations in other countries are creating opportunities for mergers and acquisitions. And new free-trade agreements are already in place or close at hand, even if the U.S. political environment will continue to frustrate its reliable engagement.
Risk has been a constant since the inception of this Index. The challenge for all global business leaders remains how to think beyond the last crisis while seeking to avoid the next. Those that take a “wait and see” approach often find that their competitors—whether small businesses or country governments—do not hold back in seeking positive growth. Our view is that opportunities abound for those that know where to look, aided by strategic foresight and analysis.
The world is more complicated now than it was in 1997. Global interconnectedness has created a more competitive and complex landscape. Technologies, ranging from unconventional energy extraction to predictive and even prescriptive analytics, are changing the game and increasing the probability of strategic disruption in every sector and corner of the world.
The complexity of risk and opportunity in 2015 underscore the importance of the insights contained in this year’s FDI Confidence Index. As always, we welcome any input you may have regarding the Index, its scope and our analysis.
“Anyone who lives within their means suffers from a lack of imagination.”- Oscar Wilde
It all seemed so easy. The elixir of low interest rates and successive rounds of quantitative easing by the central banks created an environment wherein stock and real estate prices have risen, private equity and credit deals proliferated, corporations lowered their cost of capital with low rates and sub-prime borrowers regained access to capital. Until this quarter, investors were content to drink this elixir as markets steadily climbed out of the depths from 2008. The politicians taking credit and the central bankers implementing these policies cannot be accused of a lack of imagination.
It's not getting any easier to invest, with the US economy growing quickly in the midst of trade wars and rising interest rates. The rest of the world is performing more modestly, and is more worried by US developments than the Americans.
Australia's doing better than we realise, with expansion of our resource exports, and population growth supportive of our economy, if not our stock market.
The easy gains in markets are past - we are confronted by rising world interest rates in conjunction with already elevated asset prices. Managing risk and avoiding complacency will be key.
Growth stocks are most expensive relative to their net present value, while value stocks have been depressed in relative terms. Markets are overpricing growth and underpricing stability.
Bip connected risks investing in a divergent worldSemalytix
A.T. Kearney issued its first Foreign Direct Investment (FDI) Confidence Index® in June 1998, in the shadow of the 1997 Asian financial crisis. Despite jitters following economic collapse in Southeast Asia, businesses saw investment opportunity in the Americas, Western Europe, Russia, and East Asia, and the United States took first place. Here we are in 2015, with the United States first place in the Index again and business executives still tormented by a recent global financial crisis. Today’s investors must account for divergent monetary policies in large developed economies, alongside a surging U.S. dollar and a sustained commodity super-slump. Developed and developing markets alike are moving in unexpected ways.
Yet, amid growing divergence and multiplying risks, there is genuine excitement in the global business community. It starts with the growing belief that the combined strength of the U.S. and Chinese economies—first and second in this year’s FDI Confidence Index—can buoy the world economy while others get back on track. And there is genuine dynamism elsewhere if you know where to look. Numerous countries are opening up long-guarded sectors to privatization and foreign investment. Downturns and fluctuations in other countries are creating opportunities for mergers and acquisitions. And new free-trade agreements are already in place or close at hand, even if the U.S. political environment will continue to frustrate its reliable engagement.
Risk has been a constant since the inception of this Index. The challenge for all global business leaders remains how to think beyond the last crisis while seeking to avoid the next. Those that take a “wait and see” approach often find that their competitors—whether small businesses or country governments—do not hold back in seeking positive growth. Our view is that opportunities abound for those that know where to look, aided by strategic foresight and analysis.
The world is more complicated now than it was in 1997. Global interconnectedness has created a more competitive and complex landscape. Technologies, ranging from unconventional energy extraction to predictive and even prescriptive analytics, are changing the game and increasing the probability of strategic disruption in every sector and corner of the world.
The complexity of risk and opportunity in 2015 underscore the importance of the insights contained in this year’s FDI Confidence Index. As always, we welcome any input you may have regarding the Index, its scope and our analysis.
“Anyone who lives within their means suffers from a lack of imagination.”- Oscar Wilde
It all seemed so easy. The elixir of low interest rates and successive rounds of quantitative easing by the central banks created an environment wherein stock and real estate prices have risen, private equity and credit deals proliferated, corporations lowered their cost of capital with low rates and sub-prime borrowers regained access to capital. Until this quarter, investors were content to drink this elixir as markets steadily climbed out of the depths from 2008. The politicians taking credit and the central bankers implementing these policies cannot be accused of a lack of imagination.
It didn’t go the way the pundits predicted. As the second quarter came to a close, people in the UK voted to exit (Brexit) the European Union by a narrow margin. Despite the narrow differences in the polls, global markets and the mainstream press indicated that the opposite outcome would prevail in the days leading up to the vote.
Investors hate uncertainty. The immediate reaction to the Brexit vote was severe and negative. However, stocks recovered to a great extent over the following week.
THIRD QUARTER 2015 RETROSPECTIVE AND PROSPECTIVE We’ve Seen This Movie BeforeRobert Champion
Global markets remained in turmoil as concerns regarding the global economy persisted. While much of the international focus was centred around the slowing economy in China, there were few places that investors could hide as even cash, paying little to negative interest in some parts of the world, was a relative winner in the quarter.
The euphoria of the past year carried into the first quarter of 2014 only to be rudely interrupted by geopolitical events as Russia took over the Crimea. The hue and outcry was heard around the world and global markets were shaken by this event.
Since the inauguration on January 20, we have all been inundated by media reports on the first one hundred days of the Trump administration. While stock market participants entered the year with apparently high expectations, towards the end of this 90 day quarter there has been wavering of sentiment as the realization that not all of Trump’s campaign promises are likely to be delivered.
THIRD QUARTER 2016
RETROSPECTIVE AND PROSPECTIVE
And The Band Played On…
“When democratic governments create economic calamity, free markets get the blame.”-Jack Kemp
“Politicians and diapers must be changed often, and for the same reason.”- Mark Twain
Thus far, the calamities predicted by the pundits that would result from the Brexit vote to leave the European Union have not been as severe as anticipated. Perhaps this is due to the building geopolitical and economic stresses that have diverted the focus from Brexit to other issues. Furthermore, the impact of Brexit will likely take some time to discern as the trade, migration, political and other ramifications evolve over the coming months and years. Meanwhile, governments globally continue in their efforts to stimulate economic growth with what appears to be diminishing results.
It has been ten years since the great financial crisis. In the US, the S&P 500 peaked on October 9, 2007. The Canadian market continued its upward trajectory into the following year peaking in June as energy stocks were buoyed by high oil prices. While the bull market leading up to 2008 had duration of about five years, the current bull market has gone on for ten years without any significant setback.
Credit Suisse Global Investment Returns Yearbook 2016 Credit Suisse
Against the backdrop of the first interest rate increase by the Federal Reserve in almost a decade, the Credit Suisse Research Institute’s Global Investment Returns Yearbook examines similar episodes since 1900 and derives potential implications for future economic and financial market developments.
- Download the full report: http://bit.ly/1QSo6qn
- Order hard copy: http://bit.ly/1T9sTbe
- Visit the website: bit.ly/18Cxa0p
The Trump administration’s economic policy is rapidly breaking down the World Trade Organisation (WTO) system and shattering the rules-based international order. On top of imposing tariffs, the United States is blocking the appointment of new judges to the body that interprets and enforces WTO rules, decisions and agreements.
If this continues, the WTO will virtually cease to function by the end of 2019.
This will cause a gradual breakdown of the multilateral trading system and lead to a new international economic order that is no longer anchored in liberal democratic values, nor fully constrained by the rule of law.
Source - https://theconversation.com/australia-has-to-prepare-for-life-after-the-world-trade-organisation-100522
Back in 2017 is when I did a presentation on protectionism. Many governments have expanded their protectionism policies. USA wants to reduced its trade deficits as part of supporting its agenda investment and jobs back to USA.
Superfunds Magazine - Ready to take on the worldChloe Tilley
What is the true impact of globalisation on Australian equity investing? As globalisation and the rise of technology mean geographical isolation is no longer a barrier to offshore investment, Tim Samway contributes to Superfunds Magazine to take a look at where we are now and where we should be heading.
Welcome to the Cushman & Wakefield Atlas Outlook 2016,
an update on the International Investment Atlas that reviews
how the market performed last year and, more particularly,
what we should anticipate for the year ahead.
We have examined a series of questions when approaching this publication:
what are the key forces driving and transforming the global market? Who will be
the winners in this volatile environment? How should a subsequent investment
strategy be most advantageously aligned?
Of course, in a highly uncertain but fast changing world, the need for insightful
research is increased – but the task of delivering a robust and well-considered
view is made more difficult. By bringing together expert opinion from across our
capital markets, occupier and research teams around the world, we have sought
to answer this challenge and hope you agree we have delivered a concise but
thoughtful review of the state of the market and the outlook for the year ahead.
It didn’t go the way the pundits predicted. As the second quarter came to a close, people in the UK voted to exit (Brexit) the European Union by a narrow margin. Despite the narrow differences in the polls, global markets and the mainstream press indicated that the opposite outcome would prevail in the days leading up to the vote.
Investors hate uncertainty. The immediate reaction to the Brexit vote was severe and negative. However, stocks recovered to a great extent over the following week.
THIRD QUARTER 2015 RETROSPECTIVE AND PROSPECTIVE We’ve Seen This Movie BeforeRobert Champion
Global markets remained in turmoil as concerns regarding the global economy persisted. While much of the international focus was centred around the slowing economy in China, there were few places that investors could hide as even cash, paying little to negative interest in some parts of the world, was a relative winner in the quarter.
The euphoria of the past year carried into the first quarter of 2014 only to be rudely interrupted by geopolitical events as Russia took over the Crimea. The hue and outcry was heard around the world and global markets were shaken by this event.
Since the inauguration on January 20, we have all been inundated by media reports on the first one hundred days of the Trump administration. While stock market participants entered the year with apparently high expectations, towards the end of this 90 day quarter there has been wavering of sentiment as the realization that not all of Trump’s campaign promises are likely to be delivered.
THIRD QUARTER 2016
RETROSPECTIVE AND PROSPECTIVE
And The Band Played On…
“When democratic governments create economic calamity, free markets get the blame.”-Jack Kemp
“Politicians and diapers must be changed often, and for the same reason.”- Mark Twain
Thus far, the calamities predicted by the pundits that would result from the Brexit vote to leave the European Union have not been as severe as anticipated. Perhaps this is due to the building geopolitical and economic stresses that have diverted the focus from Brexit to other issues. Furthermore, the impact of Brexit will likely take some time to discern as the trade, migration, political and other ramifications evolve over the coming months and years. Meanwhile, governments globally continue in their efforts to stimulate economic growth with what appears to be diminishing results.
It has been ten years since the great financial crisis. In the US, the S&P 500 peaked on October 9, 2007. The Canadian market continued its upward trajectory into the following year peaking in June as energy stocks were buoyed by high oil prices. While the bull market leading up to 2008 had duration of about five years, the current bull market has gone on for ten years without any significant setback.
Credit Suisse Global Investment Returns Yearbook 2016 Credit Suisse
Against the backdrop of the first interest rate increase by the Federal Reserve in almost a decade, the Credit Suisse Research Institute’s Global Investment Returns Yearbook examines similar episodes since 1900 and derives potential implications for future economic and financial market developments.
- Download the full report: http://bit.ly/1QSo6qn
- Order hard copy: http://bit.ly/1T9sTbe
- Visit the website: bit.ly/18Cxa0p
The Trump administration’s economic policy is rapidly breaking down the World Trade Organisation (WTO) system and shattering the rules-based international order. On top of imposing tariffs, the United States is blocking the appointment of new judges to the body that interprets and enforces WTO rules, decisions and agreements.
If this continues, the WTO will virtually cease to function by the end of 2019.
This will cause a gradual breakdown of the multilateral trading system and lead to a new international economic order that is no longer anchored in liberal democratic values, nor fully constrained by the rule of law.
Source - https://theconversation.com/australia-has-to-prepare-for-life-after-the-world-trade-organisation-100522
Back in 2017 is when I did a presentation on protectionism. Many governments have expanded their protectionism policies. USA wants to reduced its trade deficits as part of supporting its agenda investment and jobs back to USA.
Superfunds Magazine - Ready to take on the worldChloe Tilley
What is the true impact of globalisation on Australian equity investing? As globalisation and the rise of technology mean geographical isolation is no longer a barrier to offshore investment, Tim Samway contributes to Superfunds Magazine to take a look at where we are now and where we should be heading.
Welcome to the Cushman & Wakefield Atlas Outlook 2016,
an update on the International Investment Atlas that reviews
how the market performed last year and, more particularly,
what we should anticipate for the year ahead.
We have examined a series of questions when approaching this publication:
what are the key forces driving and transforming the global market? Who will be
the winners in this volatile environment? How should a subsequent investment
strategy be most advantageously aligned?
Of course, in a highly uncertain but fast changing world, the need for insightful
research is increased – but the task of delivering a robust and well-considered
view is made more difficult. By bringing together expert opinion from across our
capital markets, occupier and research teams around the world, we have sought
to answer this challenge and hope you agree we have delivered a concise but
thoughtful review of the state of the market and the outlook for the year ahead.
The OMNITRACKER GIS Gateway provides an extensive Route Planner. Therefore, field staff can be disposed ideally according to geographic criteria. The area of use is almost unlimited. With the integration in OMNITRACKER IT Service Management Center or Project Management Center, e.g. routes can be planned and optimized. Information about the length of a journey can be saved in OMNITRACKER for further usage.
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With the integration of OMNITRACKER GIS Gateway, the following functions are available:
Intuitively operable route planner, display of geographic positions of objects and resources, disposition of resources (e.g. field staff, servicetechnicians etc.), user-friendly dispatch view, can be combined with filters and search forms, chronological information on orders, allocation and route generation via „Drag & Drop“, easy integration in existing OMNITRACKER applications such as OMNITRACKER IT Service Management Center or Project Management Center, regular update of calendar data, latest display of resource locations.
Investors caught off guard by the Great Game’s evolution
stand to lose – on the low end – $1.41 trillion every year from
Wall Street alone.
And billions more could be eradicated from their bank
accounts due to spikes in energy and natural resource prices
– mixed with sharp drops in the U.S. dollar.
Ask yourself: Are you protected?
You don’t want to be left without a chair when the music stops.
As this Global Game unfolds, our entire way of life will
experience a dramatic shift for which very few investors have
prepared http://withDrDavid.com
Here’s a taste of the road ahead for the global economy:
• Coming supply shocks to natural resources – from oil and gas
to grains and rare earth metals – could unleash rampant
inflation that tears through every corner of the world economy.
• Exposure to mounting domestic debt leaves numerous leading
economies vulnerable to mounting geopolitical pressures,
reducing their political influence and driving up interest rates.
• The re-balancing of power between nations could cause
certain currencies to crash, economies to weaken, and
companies to crumble.
Ashton Global seeks to identify emerging portfolio managers that generate alpha by investing in non-traditional equities and special opportunities.
https://www.ashtonglobal.com/
https://twitter.com/ashtonglobal
https://www.facebook.com/ashtonglobal?ref=hl
Still keeping your money on the sidelines because you are nervous about the market? Take a look at this article to see some of the unintended risks of inaction.
Can the United States Continue to Run Current Account Deficits Ind.docxhumphrieskalyn
Can the United States Continue to Run Current Account Deficits Indefinitely?
The United States has benefitted from a surplus of saving over investment in many areas of the world, which has provided a supply of funds. This surplus of saving has been available to the United States because foreigners have remained willing to loan that saving to the United States in the form of acquiring U.S. assets, such as Treasury securities, which have accommodated the current account deficits. During the 1990s and the first decade of the 2000s, for example, the United States experi- enced a decline in its rate of saving and an increase in the rate of domestic invest- ment. The large increase in the U.S. current account deficit would not have been possible without the accommodating inflows of foreign capital coming from nations with high saving rates, such as Japan, China, and Middle-Eastern nations, as seen in Table 10.5.
For example, China has been the fastest growing supplier of capital to the United States during 2001–2010. This is partly because of China’s exchange-rate pol- icy of keeping the value of its yuan low (cheap) so as to export goods to the United States and thus create jobs for its workers (see Chapter 15). In order to offset a rise in the value of the yuan against the dollar, the central bank of China has purchased dollars with yuan. Rather than hold dollars, which earn no interest, China’s central bank has converted much of its dollar holdings into U.S. securities that do pay inter- est. This situation has put the United States in a unique position to benefit from the willingness of China to finance its current-account deficit. Simply put, the
TABLE 10.5
FOREIGN HOLDERS OF U.S. SECURITIES AS OF 2007
United States can “print money” that the Chinese hold in order to finance its excess spending. The buildup of China’s dollar reserves helps to support the U.S. stock and bond markets and permits the U.S. government to incur expenditure increases and tax reductions without increases in domestic U.S. interest rates that would otherwise take place. However, some analysts are con- cerned that at some point Chinese investors may view the increasing level of U.S. foreign debt as unsustain- able or more risky and thus suddenly shift their capital elsewhere. They also express concern that the United States will become more politically reliant on China who might use its large holdings of U.S. securities as leverage against policies it opposes.
Can the United States run current account deficits indefinitely and thus rely on inflows of foreign capital? Since the current account deficit arises mainly because foreigners desire to purchase American assets, there is
Chapter 10 361
Billions of Country Dollars
Japan $1,197
Percent of World Total
12.2% 9.4 9.4 7.6 7.2 4.9 4.0
45.3
100.0%
China United Kingdom Cayman Islands Luxembourg Canada Belgium Other 4,418
World Total $9,772
922
921
740
703
475
396
Source: U.S. Treasury Department, Report on Foreign ...
Why Global Diversification Matters By Anthony Davidow Ap.docxgauthierleppington
Why Global Diversification Matters
By Anthony Davidow
April 02, 2018
Over the past few years, some investors have begun to question the merits of global asset
allocation. They wonder whether the risks abroad justify investing money outside the United
States—and whether there truly are diversification benefits to doing so. Some have even
challenged Modern Portfolio Theory itself, which emphasizes the long-term benefits of a
diversified portfolio.
In some ways it’s natural. It’s an unpredictable world, and investors worry about market
volatility both at home and abroad. Everything from political questions in the wake of the U.K.’s
“Brexit” vote in the summer of 2016 to the recent U.S. elections to anticipation of the Federal
Reserve raising rates have indeed contributed to market swings.
Moreover, in investing—as in sports and other areas of life—people often exhibit familiarity bias
(“home-country bias” in this case). We’re inclined to believe in and root for the things that we
know best. While this may be human nature, home-country bias limits an investor’s universe of
available opportunities. Worse, it may not be prudent given the nature of today’s global markets:
According to MSCI data, roughly half of all global companies are based outside the United
States, which corresponds to global gross domestic product (GDP) ratios.
Do you really want to limit your investment opportunities by half? How can you overcome
home-country bias?
As the saying goes…
Times like these show why the adage “don’t put all your eggs in one basket” is so vital for
investors. An investment sector that performs well one month or year might be a poor performer
the next. For example, as the chart below shows, emerging market stocks were the worst
performer in 2008—only to rebound back to the top in 2009 and also 2017. More recently,
international developed stocks were among the top performers in 2017, after placing near the
bottom in 2016.
Over the long run, there’s no discernible pattern to the rotation among the top performers, so it
doesn’t make much sense to concentrate all your investments in a particular region or asset class.
A globally diversified portfolio—one that puts its eggs in many baskets, so to speak—tends to be
better positioned to weather large year-over-year market gyrations and provide a more stable set
of returns over time.
How key asset classes compare to a diversified portfolio
Source: Morningstar Direct and the Schwab Center for Financial Research. Data is from January 1, 2008, to December 31, 2017. Asset class
performance represented by annual total returns for the following indexes: S&P 500® Index (U.S. Lg Cap), Russell 2000® Index (U.S. Sm Cap),
MSCI EAFE® net of taxes (Int’l Dev), MSCI Emerging Markets IndexSM (EM), S&P United States REIT Index and S&P Global Ex-U.S. REIT
Index (REITs), S&P GSCI® (Commodities), Bloomberg Barclays U.S. Treasury Inflation-Protection Securities (TIPS) Index, Bloo.
Through all the market traumas of recent years, the crises in Greece, slowdown scares in China, US political gridlock, the collapse in oil prices, the wars and the migrant flows, investors prepared to weather short-term volatility have seen handsome returns on developed-economy equities since the depths of the financial crisis in 2008, with EUR and USD investors seeing only one modestly down year in 2011. There has also been good performance from high yield and investment grade corporate bonds, the laggards (since 2011) being investments connected to commodities and emerging markets.
Our analysis, set out in this Outlook, suggests that 2016 may deliver a fairly similar pattern. Temporary traumas could emanate from Federal Reserve tightening, reduced bond liquidity, renewed growth scares in China or geopolitics, but behind these is an underlying picture of ongoing expansion. The global economy is neither pushed up against capacity limits nor facing severe slack (except for commodities and energy), banking systems are healthy and debt levels seem more amber than red. Rapid growth seems unlikely, given aging populations (bar Africa and India) and sharing economy technologies that do not generate much Gross Domestic Product, but sensibly-priced assets do not need a booming economy to generate reasonable returns. At the time of writing (in late 2015), high yield and investment grade credits have spreads just above their quarter-century averages, giving them scope to weather gradual Fed tightening. Developed equities have valuations somewhat above historic norms on a price-earnings basis, but not on a price-book basis, and operational leverage (especially in the Eurozone) and consolidating oil prices should allow earnings growth to move from last year's negatives into the mid- to high-single digits. In short, we think developed equities and credits are well placed for another year of reasonable returns, with the dollar likely to be strong again as the Fed leads the monetary cycle. As for emerging markets, and the commodities on which many depend, a convincing general recovery looks some time away, but there is scope for some to move ahead of the pack, as discussed in a special article.
Of course there can always be risks that are not visible and Fed tightening has a habit of teasing these out, although usually not within its first year. But, equally, there could be upside surprises, if the USA finally moves toward solutions on taxing repatriated corporate cash and infrastructure spending or, more simply, the signals of rising confidence already visible in US and European consumer surveys translate into faster spending. We trust our readers will find the Investment Outlook 2016 to be of considerable interest for the coming year.
As the third quarter drew to a close, Canada had yet to come to terms with the US and Mexico on a renewed trade agreement. Investors woke up on Monday, October 1, 2018 to news that a deal had in fact been cobbled together at the last minute and that all was well in the world.
Domestic demand in some of the key rapid-growth markets (RGMs) has faltered recently and - whilst most rapid growth market economies continue to prosper - their growth trajectory seems more varied. Increasingly investors are reassessing risks.
We currently project RGMs to grow by 4.6% on average in 2013 and more close to 6% in subsequent years.
Are the good times here to stay or are we hearing the Sirens’ call? Since 2008, investors have been on an odyssey. Gradually, stock markets have managed to recover from the disastrous carnage precipitated by the financial crisis of 2007 and 2008. It has been an uneven path back to current market levels as there have been many occasions when it appeared that the fragile recovery would be stymied by bickering politicians, slowing emerging economies, deflationary pressures, regulatory zeal, civil unrest in the Middle East, over spent consumers, etc
1. MAY 2015
Jackson Hole, Wyoming
Scottsdale, Arizona
WWW.WTWEALTHMANAGEMENT.COM
1
Of 6
Key Points
• Why have international exposure?
• Higher Growth rates abroad
• Developed vs. Emerging
• Plethora of opportunities outside the U.S. borders
• Potentially lower your overall risk while potentially boosting your returns.
• ETFs can make international investing convenient.
• Understanding the Risks
WHY INVEST INTERNATIONALLY? CONTINUED ON P2
There are at least two reasons to consider adding international exposure to your portfolio: diversification
and global growth. International returns can also move in a different direction than U.S. stock market returns.
Investing internationally could help guard against some of the risks associated with a solely U.S.-based
portfolio. With a portfolio that includes domestic and foreign stocks, you could potentially reduce the risk of
losses if U.S. markets decline.
Investing internationally also lets you capture investment opportunities that arise from fast-growing economies
and markets whose currencies are appreciating against the dollar. However, that goes both ways and the
dollar has had a great run over the last year.
A CASE
FOR
INTERNATIONAL
INVESTING
WHY INVEST INTERNATIONALLY?
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WHY INVEST INTERNATIONALLY? CONTINUED
A CASE
FOR
INTERNATIONAL
INVESTING
Just like the adage about not putting all of your eggs in one basket, investing overseas may spread your
portfolio’s risk out over several regions and dozens of countries. By diversifying internationally, you are not
stuck with one type of security in a single region or subject to the performance of one asset class.
Decades ago, the leading economies were found mainly in the United States and Western Europe, but things
began to change as manufacturing moved to Asia and Latin America. The thriving economies of Asia, such
as South Korea and Singapore, began gaining the attention of American investors. Then in 2001, an analyst
coined the acronym BRIC when discussing then-emerging markets of Brazil, Russia, India, and China. These
economies have seen rapid growth in the last decade, although recently they have shown signs of slowing
down, everything moves in a cycle. Other up-and-coming markets that have recently begun to receive more
attention include Mexico, Indonesia, Turkey, Hong Kong, and the United Arab Emirates which can be accessed
through Frontier Market investments.
International markets can offer growth
opportunities that may not be available
in the United States due to differences in
household income, younger populations,
availability of natural resources, export
strength, and movement toward free-market
economic policies. Many Asian countries, for
example, benefit from exports to the rapidly
expanding Chinese economy.
Exposure to these unique growth areas,
as well as emerging markets, can boost
return potential. Emerging market countries
typically have lower household incomes
and lower debt levels relative to developed
markets, giving them the ability to grow
faster.
Economic growth in the United States is
expected to be subdued in the near term. As
an example, the International Monetary Fund
(IMF) is forecasting growth in the United
States to be below world growth over the
next several years.
Emerging-market economies in particular
are expected to have high growth rates which
the IMF estimates are two to three times
faster than developed-market economies.
Corporate revenues have the potential to
grow faster when economic growth is higher.
However, bottom-line profits depend on how
expenses grow. For example; wages in China
have continued to rise this year, despite the
slowdown in revenue growth.
HIGH RATES OF GROWTH ABROAD
Source: IMF, World Economic Outlook Update. January 2015, 1Indonesia,
Malaysia, Philippines, Thailand & Vietnam
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THE DIFFERENCE BETWEEN EMERGING
AND DEVELOPED MARKETS
A CASE
FOR
INTERNATIONAL
INVESTING
While some economists disagree on the criteria that defines a nation as “developed,” most agree that the term
applies to countries that have highly developed capital markets with ample liquidity, serious regulatory agencies,
large market capitalization, and high levels of per-capita income. You can find developed markets in the U.S.,
Canada, Germany, the United Kingdom, Australia, New Zealand, and Japan.
An emerging market can be defined as a country undergoing rapid growth that has lower personal incomes
and may have a new or yet-to-be established market structure and infrastructure. Some emerging markets
include Colombia, Egypt, South Africa, Turkey, and Vietnam. The term also can include what analysts call Frontier
Markets, which are nations that are slowly adapting to modern capitalism such as Bangladesh, Botswana, and
Nigeria.
At WT Wealth Management we advocate an allocation to both developed and emerging countries and even
frontier countries for our more risk adverse investors.
UNITED STATES BECOMING A SMALLER SHARE OF THE PIE
The United States boasts the world’s largest economy and stock market, the country’s importance and share
of the world economy has been declining, particularly as emerging markets have grown in size. Remember,
investing solely in US stocks means excluding nearly three-fourths of the global economy and over half of the
world’s stock market value.
Despite the size of non-U.S. markets, U.S. investors held, on average, only 27% of their total stock allocation in
International investments. I think it’s important to note that if we looked at international allocations ten years
ago, that number would have been closer to 10 or 15%. The fact that investors have increased their exposure
to non-U.S. stocks is a positive thing. But there are many reasons why investors might maintain what we call a
“home bias”, a desire to have more exposure to their own securities. There are some rational reasons, but mostly
it comes down to the behavioral tilts and that attitude of “I just like to invest in what I’m comfortable with and
what I know.”
World Market Capitalization
As of May 2008
Asian Pacific 15%
Canada 4%
Emerging
Markets 11%
US 40%
Europe 30%
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POTENTIAL TO LOWER OVERALL RISK IN YOUR PORTFOLIO
Investors can potentially reduce portfolio risk by diversifying their investments across various asset classes—
categories of investments—each tending to respond differently to various market cycles and events.
International stocks are one of the five main asset classes, along with large-cap stocks, small-cap stocks, bonds
and cash investments. While international investing has higher stand-alone risk, the power of diversification
across asset classes can potentially lower your overall portfolio risk.
Put simply, by investing abroad you gain exposure to companies operating in other countries -- with potentially
unique products and customer sets, which – may weather market downturns and upturns differently.
A CASE
FOR
INTERNATIONAL
INVESTING
One of the major benefits of investing internationally is the improved diversification of your portfolio. More
than half of the investment opportunities in stocks around the world are available outside of the United States.
Seventy percent of the largest automobile companies, 70% of the diverse telecommunications companies,
80% of mining and metal companies, and 60% of the largest electronics companies all exist outside of the U.S.,
making up a huge portion of the big companies around the world. This means that for anyone who wants to
invest in any of these businesses, they must invest outside of the country.
Potential to Increase Return and Lower Risk
(1971 - 2011)
Risk (standard deviation)
Reutrn(annualized)
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Investing internationally brings increased risks and volatility. However, the good news is that many of these
risks are reduced if you hold a diversified (by country, sector and company) portfolio of international stocks,
such as many ETFs provide. One the ETFs we use at WT Wealth Management has over 1,300 holdings with
exposure to 24 countries.
The short term is what everyone focuses on, for better or for worse. So, when we’re talking with our clients,
what we try to encourage is to take a step back and think about their long-term investment objectives. The
objective of being globally diversified, whether it’s in fixed income or equities, is to be more diversified rather
than less diversified. If we are trying to react on a minute-by-minute or day-to-day basis, we’re going to end
up chasing our own tails.
Admittedly, it’s been a struggle over the last several year staying committed to an international allocation. The
U.S. has performed well and developed and emerging international markets have lagged far behind, but as
they say “the worm always turns”, it’s just a matter of when.
Global diversification doesn’t come without risks. Only your financial professional can determine if the rewards
outweigh the risks. Here are some of the most common and well known risks associated with international
investing.
Political and regulatory risk: Foreign governments can be less stable and they can have restrictions on
how freely businesses operate as well as their ability to earn profits. Also, a country’s financial condition can
undercut growth prospects.
Information risk: Finding timely and accurate information about international investments may be more
difficult, and there can be differences in accounting standards. This can make comparisons to US companies
challenging.
Currency risk: There’s the possibility that the currency of your investment will fall relative to the US dollar,
lowering the return after it’s translated back into dollars.
Transaction risk: Some countries impose currency controls that restrict or delay currency conversion,
prolonging the time until you are able to access your funds. Reporting, clearing and settlement of trades also
may take longer.
Higher volatility of returns: International markets can be more volatile and trading can be less liquid (fewer
shares changing hands). Dollar-cost averaging—investing a fixed dollar amount at regular intervals—can be a
good tactic to spread out risk and lower the average cost per share.
Higher costs: Investing directly on foreign exchanges can bring additional fees, including higher commission
costs, exchange fees, stamp duties, transaction levies and foreign currency fees. These fees are the reason
most international mutual funds and ETFs cost investors a bit more (via higher expense ratios) than their
domestic counterparts.
KNOW THE RISKS OF INTERNATIONAL INVESTING
A CASE
FOR
INTERNATIONAL
INVESTING
CONCLUSION CONTINUED ON P6
At WT Wealth Management we advocate a globally diversified portfolio for most investors. Since the great
recession of 2008-2009 investors have become more concentrated in their domestic allocations for a few
reasons in our opinion. The last few years have produced better returns in the U.S. than abroad and the
associated higher degree safety that investing in the U.S. brings, while adding some comfort to already jittery
investors.
CONCLUSION:
6. CONCLUSION CONTINUED
A CASE
FOR
INTERNATIONAL
INVESTING
DISCLOSURE
WT Wealth Management is a manager of Separately Managed Accounts (SMA). Past performance is no indication of future
performance. With SMA’s, performance can vary widely from investor to investor as each portfolio is individually constructed
and allocation weightings are determined based on economic and market conditions the day the funds are invested. In a SMA
you own individual ETFs and as managers we have the freedom and flexibility to tailor the portfolio to address your personal
risk tolerance and investment objectives – thus making your account “separate” and distinct from all others we potentially
managed.
An investment in the strategy is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
Any opinions expressed are the opinions of WT Wealth Management and its associates only. Information is neither an offer
to buy or sell securities nor should it be interpreted as personal financial advice. You should always seek out the advice of a
qualified investment professional before deciding to invest. Investing in stocks, bonds, mutual funds and ETFs carry certain
specific risks and part or all of your account value can be lost.
In addition to the normal risks associated with investing, narrowly focused investments, investments in smaller companies,
sector ETF’s and investments in single countries typically exhibit higher volatility. International, Emerging Market and Frontier
Market ETFs investments may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in
generally accepted accounting principles or from economic or political instability that other nation’s experience. Emerging
markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Bonds,
bond funds and bond ETFs will decrease in value as interest rates rise. A portion of a municipal bond fund’s income may be
subject to federal or state income taxes or the alternative minimum tax. Capital gains (short and long-term), if any, are subject
to capital gains tax.
Diversification and asset allocation may not protect against market risk or a loss in your investment.
At WT Wealth Management we strongly suggest having a personal financial plan in place before making any investment
decisions including understanding your personal risk tolerance and having clearly outlined investment objectives.
WT Wealth Management is a registered investment adviser located in Jackson, WY. WT Wealth Management may only transact
business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. Any
subsequent, direct communication by WT Wealth Management with a prospective client shall be conducted by a representative
that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client
resides. For information pertaining to the registration status of WT Wealth Management, please contact the state securities
regulators for those states in which WT Wealth Management maintains a registration filing.
A copy of WT Wealth Management’s current written disclosure statement discussing WT Wealth Management’s business
operations, services, and fees is available at the SEC’s investment adviser public information website – www.adviserinfo.sec.
gov or from WT Wealth Management upon written request. WT Wealth Management does not make any representations or
warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated
third party, whether linked to WT Wealth Management’s web site or incorporated herein, and takes no responsibility therefor. All
such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.
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In 2014, the S&P 500 returned 13.69% while the developed international benchmark the EAFE lost nearly 5%. In 2013, the
S&P 500 increased 32.3% while the EAFE gained 22.8%. In fact, the EAFE has only beaten the S&P 500 twice in the last 5
years. However, as of May 1st, 2015 the S & P 500 is up 2.4% while EAFE Developed Market Index is ahead 10.54% and the
Emerging Markets Index is better by 9.85%. Will this continue? Who knows, but it illustrates the benefits of fully diversified
global portfolio, having a plan and being patient.
At WT Wealth Management we have an active approach to portfolio management and actively transition our clients’
investments in an effort to seek out opportunities around the world. While we hated the exposure our clients had in foreign
investments last year, we are loving them this year.