International stocks can help add a touch of diversification to a portfolio while also capturing upside growth in parts of the world that are in different economy cycles. Furthermore, international equities can be an ideal option when looking at the long-term horizon.
Instant gratification isn’t the arena for investing in international equities. It can be easy to get caught up in an investing world where “What have you done for me lately?” is an ongoing narrative on the short-term scale.
However, a closer look at international equities portrays a picture of outperformance when looking at longer timespans.
“To be sure, over the last 10 years or so, foreign stocks have not done as well as U.S. stocks,” said Dr. David Ashby, a certified financial planner (CFP) and retired finance professor at Southern Arkansas University, in a Magnolia Reporter story. “Over the last ten years, the S&P 500, a measure of U.S. stocks, has returned an average of 16 percent a year. Foreign stocks, meanwhile, earned around 9 percent per year. Those return differences make it easy to become discouraged about foreign stock investments. The behavioral economists call this mindset ‘recency bias.’ We place more emphasis on what has occurred recently rather than events further in the past.”
“A longer term look at market returns paints a different picture,” Dr. Ashby added. “Let’s compare a globally diversified portfolio (one holding stocks from all over the globe, including U.S.) to a strictly U.S. portfolio, represented by the S&P 500. Over the last 50 years, the global portfolio outperformed the U.S. portfolio about 85 percent of the time, adding on average a couple of extra percent in returns per year.”
An Active International Option
As mentioned, because economic cycles can vary from country to country, getting international diversification can help mitigate and provide potential growth opportunities that aren’t available by tilting a portfolio strictly towards domestic assets. For an added layer of risk mitigation, investors can opt for a touch of quality as well.
If quality alone isn’t enough, then active management adds extra protection for risk control. This can all be had in one exchange traded fund (ETF): the American Century Quality Diversified International ETF (QINT).
QINT is designed to enhance core international exposure by applying a systematic methodology that emphasizes high-quality value and growth companies, primarily in developed markets. Features of the fund per its product website:
- Identifying quality companies with sound fundamentals and attractive growth and value characteristics.
- Responding to prevailing market conditions by adjusting exposure to growth and value styles.
- Managing risk through position limits and an emphasis on larger-cap/less volatile securities.
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