Is there a good reason to be other than U.S. centric for equity investments, at this time?

catch22

Morning Coffee Question.

This question is outside of what percentage one may have in bond holdings of various colors; but related to the equity side.

Okay, be diversified, etc. This prospect depends upon the investor.

A good guess may indicate that if one holds U.S. centric funds of whatever flavor, that perhaps 10% of the holdings may be outside of the U.S.; the exception may be in the small cap area. A further presumption will be that especially with the large/mid cap holdings, may have a fair share of earnings from outside of the U.S. With this, one may presume some international equity exposure; whether desired or not.

Just wondering what you may favor and the thought process for your choice; regarding leaning more towards the U.S. equity side or not.

Our house has about 5% of the equity portfolio positioned directly at non-U.S. equity ( GPROX ), with the remainder currently overweighed towards the large and mid cap U.S. equity area.

Well, a somewhat loaded question, with an answer being in the comfort zone of each investor.

Thank you and take care,
Catch

JohnChisum

I have been on the global diversification bandwagon since the 90's. In the past several years though, I read more and more that by just holding US based companies, you already have good international exposure. @catch22, I think your 10% number is way low. I believe it is 20-30%. Perhaps I can find something later.

I am more and more going in the direction of US based funds and investing internationally in areas that show future growth like Asia. Many of the funds I own have international components I them and my current international equity allocation is 36%.

Good question and should make for a good discussion. Thanks @catch22.

Charles

I think some fund managers believe that there are more opportunities to exploit pricing inefficiencies in companies outside US. Similar to the micro cap argument.

LLJB

I think the reality is that stocks of the developed world should do well. The Japanese are pumping something like 3 trillion yen (about $25 billion) in stocks and roughly $750 million in Japanese REIT's on an annual basis. At the end of October the Japanese Pension Fund also increased its allocations to both Japanese and international stocks from 12% to 25% (that's 25% each not combined) which I think is about $137 billion for each.

The Europeans are in desperate need and will likely make their own QE more aggressive sometime in Q1 2015. I believe this will drive their stock markets higher and will help the US too as some of that money gets invested in the US.

Of course the Nikkei has already seen a good increase since these measures were announced, but if you think about how far the S&P has come since QE started in the US then there should be a lot further to go. Even if you consider the economy of Japan, and maybe even Europe is better than the US was in early 2009, and certainly sentiment is better, I think there's still a long way to go for these markets.

The key is, and I think this the most important part, if you want to invest in Europe and/or Japan, I would want to be hedged against the currency. I have a few mutual funds that are typically not hedged and I'm keeping them but not using them to invest more. To the extent I'm investing more in Europe or Japan I'm using hedged ETFs or the futures market where I can hedge the currency myself.

I also like emerging markets because I think, like Europe, the valuations are more reasonable than the US or Japan right now and I think not many are talking about those markets, partly because they fear they will suffer when/if interest rates start increasing in the US and I tend to believe the Europeans and Japanese will most likely fill in any gaps left by US investors.

So, overall, I think the returns in Europe and Japan will be even better than the US but only if you hedge, but you are quite right that you get a decent amount of foreign exposure just buying the big US companies. Let's just hope they're good at hedging their currency exposure too.

JohnChisum

One side effect of growing profits from overseas is that companies are leaving the money overseas to avoid taxes.

catch22

@JohnChisum
Some of the large cap blend index and eft type funds have little direct international exposure. Two Vanguard related indexes I peeked at indicate less than 1% direct.
Take care,
Catch

slick

Have not changed anything, I keep about 11% invested between developed and emerging, you never know when it will turn, and when it does, it usually moves fast. I don't tend to get out and get back in to sectors or asset classes, just dink when we have down markets to add to a fund or stock. But I do use stop losses on some of my stocks. Also not averse to selling a stock that has had a run.