By John Drachman
With U.S. stock portfolios brimming with positive returns this year why would anyone invest overseas?
After all, the S&P 500 is up almost 20% for the year through September 30 compared to the MSCI Ex-US and EAFE Indices at 12.1% and 10.5% respectively.
Even Capital Wealth’s market strategist Jeffrey Saut, a proven bear market prognosticator, recently told MarketWatch, “There ought to be years left in this thing.” Investors can be forgiven for thinking that leaving the U.S. bull market today is like leaving a party before it’s over. Still, with year-end portfolio adjustments ahead, there are three good reasons to look across the pond to the fertile hunting ground for international equities.
- Baby Boomers Flip the Portfolio Switch to Retirement Income As 10,000 baby boomers a day turn 65, they are shifting their investment objectives from primarily total return to a blend of return and retirement income – precisely where overseas stocks shine brighter. Through September 30, MSCI Ex-US stocks delivered a robust 3.5% dividend yield versus the S&P 500’s anemic 2.1% — a whopping 169% more. This isn’t a short-term fluke either. Over the course of 20 years, MSCI Ex-US’s dividend average outperformed the S&P 500 yield by 150%, based on average dividend yields of 3.1% vs. 2.1% respectively.
- Most Top-Performing Companies Are “Over There” Thoughtful stock pickers cannot afford to overlook international markets. Over the past decade, the best-performing companies were overwhelmingly domiciled outside of the U.S. Among the top 50 companies that delivered the highest annualized returns to investors this year, 78% were located in Europe and Asia.
- Pay Less for More Everybody likes a bargain. While the bull-centric U.S. market has become more growth-oriented, international investors are discovering good companies with significantly more value than U.S. stocks based on their lower price-to-earnings (P/E) ratios. International markets also provide greater access to the value-oriented stocks of older economy sectors like financials, basic materials and consumer staples.
Along with their potential upside, international stocks have risks not usually associated with the U.S. such as political and economic risk, substandard accounting procedures, currency fluctuations and more.
Still, good companies can thrive even in risky countries. “In some places, the economy may not be thriving but you can still find companies that are thriving,” says Jody Jonsson a portfolio manager with New Perspective Fund®. “I want to own companies that are truly excellent in their respective industries, regardless of where they are headquartered.”
International investing can diversify your portfolio with opportunities that you might have missed by staying at home. While some investors like to make all of their own decisions, you might prefer to tap into the expertise of a professional financial advisor who can validate your research and selection ideas.
After all, whether you are looking abroad or playing it closer to home, the last thing you want is a portfolio that is out-of-sync with clearly articulated, long-term objectives.
John Drachman is a contributing writer to www.myperfectfinancialadvisor.com, the premier matchmaker between investors and advisors . John is an IABC award-winning writer, who applies his 30 years of financial marketing experience toward advancing the dialog between investors and investment professionals.