Avoid Portfolio Isolationism with International ETF Exposure

When considering a well diversified investment portfolio, investors should look to worldwide opportunities and international ETFs that may potentially enhance returns.

On the recent webcast (available on demand for CE Credit), Avoiding Portfolio Isolationism, Christopher Davis, Chairman and Portfolio Manager of Davis Advisors, pointed out that investors who focus too much on domestic markets may be missing out. The U.S. GDP makes up 25% of the world GDP, and U.S.-listed stocks only make up 10% of the world total market capitalization.

Danton Goei, Portfolio Manager of Davis Advisors, also mentioned how improving discretionary spending in the developing world may also contribute to faster growth. The global middle-income class is expected to rise to 3.2 billion in 2020 and expand to 4.9 billion in 2030, compared to the 1.8 billion back in 2009. Meanwhile, total global middle-income class spending is expected to increase to $35.0 trillion in 2020, with North America only making up 17%, and spending is projected to jump to $55.7 trillion in 2030, with North America accounting for 10%.

Davis also outlined the current U.S. outlook, revealing an economy that is more or less in its later stages of its economic business cycle, which includes relatively full employment, moderate growth and peak margins and valuations in the equities market.

On the other hand, Goei highlighted the ongoing recovery and potential greater growth opportunity in international markets. For instance, the European economy continues toward recovery from its financial crisis, and the emerging markets exhibit attractive valuations and rapid growth, especially in economies like China and India.

Davis Advisors also argued that there are three main themes fueling the global growth story, including the rise of the online consumer worldwide, expansion of global transportation and boom in global education.