Diversifying investments is done with the intent of achieving higher returns while reducing risk. Recently, billions of US dollars have shifted into global stocks, funds and ETFs and the wave doesn’t seem to be slowing any time soon.
Nicholas Vardy for Seeking Alpha has some views global investors should consider. He points out that over the last decade, it’s hard to deny diversification hasn’t quite done what it’s intended to do. The correlation of U.S. markets to global ones following the dotcom crash was high, as both sides went down together. During the past few years, a lot has changed and the correlation has dropped as global markets have outperformed domestic almost 3 to 1. Global investing has never been more attractive and here’s why:
- U.S. stock prices relative to earnings are more expensive compared to their global counterparts.
- Preconceived notions and insecurities about investing abroad are eroding.
- The weakening U.S. dollar is enhancing foreign returns, making them look that much stronger.
- U.S. economy doesn’t dominate the rest of the world anymore. Economic and corporate profit growth has slowed domestically, giving the rest of the world their time for expansion. Some emerging economies are undergoing their industrial revolution.
- Growth rates in the developing world are double that of Europe and the U.S.
- The world’s economies are relying less on the American consumer. Commodities are allowing other countries to pull in the cash.
Top global regional ETFs include:
- Dow Jones Euro Stoxx 50 (FEZ)
- BLDRS Asia 50 ADR Index (ADRA)
- BLDRS Emerging Markets 50 ADR Index (ADRE)
- iShares S&P Latin America 40 Index (ILF)
Top global ETFs by assets:
- iShares MSCI EAFE Index (EFA)
- iShares MSCI Emerging Markets Index (EEM)
- iShares MSCI Japan Index (EWJ)
- iShares MSCI FTSE/Xinhua China 25 Index (FXI)
- iShares MSCI Brazil Index (EWZ)
Although the benefits of investing in a core, developed market are beginning to fade, new markets rising up are growing the diversification pool for everyone, everywhere. The emergence of global markets may be one of the best investment opportunities we’ll see in the next ten years.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.