Homepage / Investment / US investors should get some international exposure
Google CEO Sundar Pichai said he doesn't regret firing James Damore Cramer Remix: My advice for Lloyd Blankfein on cryptocurrencies Cramer: The Amazon Prime rate bump is a clarion call to buy the stock Cramer's game plan: Watch individual stocks amid the earnings deluge Amazon just hired a top Seattle doctor from Iora to add to its health group: Sources Facebook's News Feed will now have users decide 'high quality' news through surveys Overstock mixed up bitcoin and bitcoin cash, letting customers buy items at a steep discount Prominent crypto critic calls bitcoin a ‘bubble’ and says go to Vegas if you want to gamble US stocks will likely run higher for another 11 years, Wall Street's Tom Lee says A government shutdown may not affect stocks much, but a bigger political battle brewing will Jeff Ubben's ValueAct launching fund with social goals, following similar moves by Jana, BlackRock Dow stock Boeing is up over 100% in one year, and some say the run isn't over Google CEO: You don't need to code to be successful at many jobs of the future—but you'll need this Netflix could see a huge move on earnings next week Netflix shares to surge on big international subscriber gains, analyst predicts What will Trump say at Davos? Six analysts give their predictions I tried to get my iPhone 6 battery replaced — here's what happened Jan Koum got the idea for $19 billion WhatsApp after missing too many iPhone calls at the gym Home security firm ADT drops 10% in NYSE debut Cramer: I'm fine with Amazon raising monthly Prime prices because it's still cheap Staten Island-based 'CabbageTech' charged with bitcoin-related fraud after promising 300% returns in a week Kohl's shares could pop 50% as Amazon partnership ramps up Trump's market cheerleading tweets could end up fueling a bubble New GOP tax law will boost corporate earnings at least 10%, says Merrill Lynch wealth manager Rising mortgage rates could mean even fewer homes for sale this spring Nike shares jump after analyst predicts a rally on new sneaker sales Investor 'fear of missing out' runs wild as record amount of money flows into stocks the last four weeks A crucial German vote this Sunday is seen as the key near-term driver for euro/dollar Oil price rally will not persuade OPEC to end production cuts, analyst says LA Times' Levinsohn under investigation after report on sex harassment Amazon is raising its monthly Prime membership rate There's a new venture fund founded by a former DJI and Tesla engineer and an ex-Kleiner partner Amazon and Nvidia are hiring people to cozy up to health VCs The executive in charge of Facebook’s efforts to court China has left the company 6 global trends that can derail your portfolio in 2018 Huawei executives are self-imposing a fine of nearly half a million dollars for inflated sales data Square shares pop after analyst says its similar to 'Amazon or Google in their early days' London's 'almost toxic' housing market might not give investors the returns they are looking for Hot tech stock Nvidia has even more room to run, says technical analyst Gaming giant Nvidia, after 113% gain, could surge another 23%, BofA analyst says Walmart will see a larger breakout after ‘lost’ years, Oppenheimer analyst says The bull case for Netflix ahead of earnings The UK’s foreign minister wants to build a 22-mile bridge to France Rising hedge fund stars are crushing the market, taking crown away from Einhorn, Ackman New Zealand PM set to be only the second world leader to give birth while in office The bond yield that helps price all sorts of loans just jumped to its highest level since 2014 Berlusconi has been in politics for nearly three decades. This is the secret to his popularity Indonesian leader's third cabinet reshuffle could have elections implications Who are ‘Davos Man’ and ‘Davos Woman’? European stocks seen mixed ahead of earnings, data Bitcoin could be here for 100 years but it's more likely to 'totally collapse,' Nobel laureate says China says sunken Iranian tanker may be leaking bunker fuel South Korean group files complaint against Apple CEO over iPhone slowdown What happens during a US government shutdown Bitcoin is 'something regulators need to deal with but not ban,' says former FDIC chair Cramer Remix: How I decide which retailers are not buyable Cramer's lightning round: Hormel's one of the few food stocks I like Cramer tracks 4 growing market discrepancies: Rates, Trump, cryptocurrencies and stocks Asian markets poised to open with moderate gains despite softer US lead IBM executive says blockchain 'creates a lot of value' for manufacturers, retailers Bitcoin's on a wild ride, but investors have shown it's here to stay, analyst says Cramer: I've never seen a market like this in my life Atlassian beats estimates, but its shares fall anyway Snap laid off two dozen employees and half of them were from its content team Tesla bringing Model 3 to three East Coast showrooms This start-up founder has a novel strategy for getting ahead: Telling the truth Texas Instruments' long-time CEO is stepping down after the stock rallied 57% in the past year Trump says he called and thanked Tim Cook after Apple revealed its US investment plan There's 'no evidence' Tasers reduce police use of firearms, new study shows IBM shares fall despite first growth in 23 quarters Tim Cook tells Cramer: New tax law helped pave the way for Apple’s massive investment plan Uber's Kalanick ignored warnings from execs about buying self-driving truck start-up Otto, says report Washington, DC, and Austin are shaping up as strong contenders for Amazon's new headquarters Legacy airlines are facing new competitors on transatlantic routes Here’s how cities are reacting to being finalists for Amazon HQ2 A high schooler interviewed Apple CEO Tim Cook — and he told her his secret to success Another top Silicon Valley investor slams politically correct tech culture, praises China Steve Wozniak is still on Apple's payroll four decades after co-founding the company Bank of America loses its second head of tech and media banking in less than a year Three of the finalists for Amazon's second headquarters are in or near Washington DC Wrong on GE, market-beating value investor Bill Nygren says he is sticking by tanking blue chip Apple may have just saved the GOP Bitcoin rallies more than 30% to briefly top $12,000 in latest wild swing GE shares drop to 6-year low below $17 With eye on Brexit talks, May offers France money for border security Uber ex-CEO Travis Kalanick will officially be a billionaire Thursday, as deal with SoftBank closes The French government experiments with venture capitalism The World Bank’s “ease of doing business” report faces tricky questions Our Big Mac index shows fundamentals now matter more in currency markets The threat of tough regulation in Asia sends crypto-currencies into a tailspin Innovative materials from bamboo are helping a new industry to sprout A weak market for football rights suggests a lower value for sport Why driverless cars may mean jams tomorrow Chinese tech companies plan to steal American cloud firms’ thunder Masayoshi Son may raise yet more cash to pump into tech The hedge-fund delusion that grips pension-fund managers Ignore the bad housing starts number. Builder optimism and buyer demand are high Facebook launches 30-city Community Boost program Blockchain cryptocurrency wallet launches bitcoin buy and sell in the US to challenge Coinbase An overlooked, gutsy way for investors to make huge returns

Investment

US investors should get some international exposure

Only 45 percent of American citizens have a passport, which implies that 55 percent of Americans only travel domestically. Slowly, however, Americans are warming up to the virtues of international travel, as 2016 was a record year for Americans traveling overseas.

Similarly, many U.S. investors are disinclined to look outside of the United States for investment opportunities. The U.S. economy is the single largest economy in the world, which makes investors believe there is little to gain from venturing elsewhere. However, there are three crucial reasons why investors should ensure they have a meaningful allocation to international equities in their portfolios.

1. The world is a big place. The share of the global economy found outside of the United States has been steadily rising, from 78 percent in 1990 to 85 percent in 2016. The ability to invest in that overseas growth has also increased, with international markets now representing 60 percent of global public capital markets, compared to 53 percent in 1990. This trend is set to continue, yet international equities and bonds represent only 21 percent of U.S. investors’ portfolios.

2. Protection is key. Investing internationally helps to diversify a portfolio. Overseas markets move up or down based on local developments that affect domestic company fundamentals; what may affect a U.S.-based company may not be relevant to a Brazil-based company, for example. As a result, the correlation between U.S. and international equities tends to be fairly low outside of crises.

It’s important to remember that while investing in U.S. companies that have a significant portion of their revenues coming from abroad may sound like a solution, the only way to truly be insulated from U.S.-specific fluctuations is by investing in international directly.

More from Active/Passive:
Don’t wait for reform to craft your tax strategy
Hedge funds: Downside protection and risk
Mega-cap tech run handcuffs stock investors

3. Variety is the spice of life. An equity portfolio that has both U.S. and international should have a better risk-and-return profile than a U.S.-only portfolio because it taps into a wider opportunity set and has lower correlations between assets. However, over the past 15 years the result was not particularly encouraging, with the addition of international equities not providing enough additional return to justify the higher volatility. This was due to the poor performance of developed markets ex-U.S. during this time.

Over the next 10 to 15 years, U.S. equity returns will likely be lower than in the past, given a continued low-growth environment and current elevated valuations. A possible way for investors to achieve similar returns to those provided by U.S. equities in the past is to have a meaningful allocation to international.

Oftentimes, common fears get in the way of larger, international exposure. So why would international actually deliver? Investors may wonder whether the future will look different for international investing or whether it is a tourist trap. Three factors suggest that international equities are actually a hidden gem: growth, earnings, valuations and currencies.

Investors have gotten used to thinking that the United States is the only worthwhile place to visit. Indeed, the U.S. economy has seen steady growth for eight years since the global financial crisis, while other regions were beset by issues such as a double-dip recession in Europe caused by the sovereign debt crisis and a slowdown in emerging markets as a result of the commodity price collapse. However, after several improvements many regions are now attractive places to visit once again. In fact, the greatest acceleration in growth is happening abroad in regions in earlier stages of their expansion relative to the United States.

From 2011 to 2016, the challenges faced by other economies resulted in U.S. earnings growing faster than international ones. However, with the improvement in global growth beginning in early 2016, international earnings are now starting to grow faster than those in the United States. While U.S. companies have been reporting record-high earnings since 2011, emerging market earnings are still 32 percent below their previous peak, and euro zone earnings are still 74 percent below theirs. With the encouraging acceleration in economic growth, we can expect these gaps to continue to close.

With the U.S. bull market now well into its ninth year, U.S. equities are no longer cheap, both in absolute terms as well as relative to other equity markets. In general, overseas markets tend to trade at lower valuations, but international is close to the cheapest it has been relative to the United States in 15 years.

From mid-2011 to late 2016, the U.S. dollar strengthened close to 30 percent against developed and emerging currencies. For U.S.-based investors, this meant that converting their foreign returns into U.S. dollars resulted in lower numbers because the foreign currency had gotten weaker. Looking forward, we believe we are at the beginning stages of a long move down for the dollar as a result of better global growth, narrowing interest-rate differentials, more stable commodity prices and a persistent U.S. current account deficit. This weaker-dollar environment would provide a boost to international returns.

The strong run in international markets over the past year may leave investors wondering if they are too late. We believe we are still in the early stages of international equity outperformance. Comparing U.S. and international equity performance since the global financial crisis, it is clear that the recent move up in international is still only a drop in the bucket. U.S. equities have returned more than 150 percentage points more than their international counterparts during this time, with international not yet having recovered to its pre-crisis peak.

The feeling may be that everyone is talking about international now, so isn’t it already packed? Increasingly, positive international developments are receiving the attention they deserve. As a result, investors worry that international equities are already a “consensus trade,” but U.S. investor equity positioning has barely changed, meaning investors have yet to take action.

While opportunities still exist in U.S. equities, investors should ensure they have enough exposure to international equities. Over the next decade, a meaningful allocation to international will be crucial to improve overall equity returns. Many investors still underestimate the strength of the global economy and overestimate their exposure to international. U.S. portfolios are still overly concentrated in U.S. equities at a moment when international economic and earnings growth is accelerating, valuations are cheaper abroad, and the currency may provide a tailwind to returns.

Fundamentals suggest that the euro zone and emerging markets, specifically cyclical sectors within these regions, look particularly attractive.

— By Gabriela Santos, global market strategist at J.P. Morgan Asset Management

Source: Investment Cnbc
US investors should get some international exposure

Comments are closed.