With the capital markets in the United States nearing all-time records in all major indexes in equities, it’s easy for an investor to get caught in a bout of portfolio isolationism by allocating all investment capital domestically. However, Davis Advisors reminds us that investing abroad opens up investors to a wealth of opportunities that don’t exist in the U.S.
Although American businesses may be operating domestically, the race for capturing market share is a global competition. As such, investors may not even realize it, but their portfolio may already reflect international investments.
“Globalization is a reality,” said Christopher C. Davis, Chairman and Portfolio Manager at David Advisors. “You are a global investor even if you are investing only in the U.S.”
Related: ETF of the Week: Emerging Markets Internet & Ecommerce ETF
The United States comprises just 25% of the world’s gross domestic product. This leaves investors with 75% of wealth-building opportunities to capitalize on through international markets.
With that macro perspective in mind, Davis, an industry veteran with over 28 years of investment management experience, poses an important question–“How on earth can you be looking to build wealth over the long term if you’re only looking at such a tiny minority of the world’s economy or the world’s population?”
While 2018 has been unkind to emerging markets, the latter half of 2018 and beyond could see the bulls finally wrestling control of emerging markets from the bears. Relative to U.S. equities, market analysts view emerging markets as those having attractive valuations at relatively cheap prices that could stem the tide should the U.S. capital markets experience a downturn after a serendipitous run up the past years.
“We’re looking at a time when international markets have lagged so that combination of quality, growth and value–that’s really an investor’s dream,” said Davis.
In comparison to the MSCI Emerging Market Index, the S&P 500 has been on an upward trajectory despite trade wars that have laid emerging markets to waste, particularly in the past month. In addition, hawkishness exhibited by the Federal Reserve’s raising of interest rates and a rising dollar could continue to discourage investments in the U.S. domestically and from abroad.
Related: 4 Reasons to Invest in Emerging Markets
Due Diligence at Davis Advisors
As far as investment strategies for international markets are concerned, Davis Advisors exercises the utmost due diligence when looking at investments in specific corners of the globe. This extends beyond the fundamentals of looking at financials to determine the company’s overall health.
“We’re looking for longevity and experience of course,” said Danton G. Goei, international portfolio manager at Davis Advisors. “We also do due diligence on not only just the company, but we talk to all their competitors’ suppliers and customers.”
By looking at this qualitative data, Davis advisors is able to extract valuable insight into the inner workings of a company that don’t exactly appear on a balance sheet. It provides the impetus for success in investments abroad for their funds, such as the International Fund and Global Fund.
“Just beyond the numbers, it is really building and understanding the ecosystem,” said Goei.
For more market trends, visit ETFTrends.com.