International Investing: A Global Perspective

The world is getting flatter and international opportunities are becoming transparent. Allocating international stocks in your portfolio can give you an edge over U.S. only based investing. With more transparency, cross border transactions will become more seamless and give consumers the opportunity to broaden their investment horizon. Below are a few reasons why you should consider allocating a portion of your portfolio to international stocks:

1. Global Singularity — When it comes to investing, sales and margins are two main factors to consider, with location being tertiary. A fundamental investor should focus on returns delivered to shareholders, irrespective of country location. International trade accounts for more than half of the S&P 500’s revenues and is up from over a decade ago. Investors need to focus on how they can achieve a healthy return while maintaining a competitive edge.

2. Industry Groups instead of Country Groups — Economists have spent a lot of time naming emerging markets and categorizing countries based on growth potential. Turns out it would be more advantageous to invest in a growing sector as opposed to a growing economy. The sector in which a company operates can be much more important than its location. Think about the market risk one is taking when investing in large and mid cap stocks in other regions. Diversification can enhance returns and minimize when choosing specific global sectors.

3. Global Diversification — Investing across multiple countries and sectors can result in a higher safety of principal. The primary goal of investing should be to minimize losses when you are focusing on performance. In exchange, global markets do offer a variety of risks to consider from currency exposures, geopolitical events and tax implications when investing overseas. Over the long run, these risks can be offset by increasing diversification in growing sectors across the world.

Summary
Even with a U.S. based stock portfolio, investors are already indirectly exposed to a large amount of global market risk. Globalization is here to stay and the smart investor needs to begin focusing on opportunities overseas. Investors will have to continue looking for more opportunities overseas as cross border business becomes seamless.

Lacking direct international exposure may mean you could miss out on global macro themes. By keeping an eye on sector growth from regions such as Europe and Asia, individual investors can stay ahead of domestic based companies. It is time to capitalize on these new developments as opportunities continue growing overseas.