International Investing: “You Must Unlearn What You Have Learned”

By John Lunt, Lunt Capital

Two years ago, Lunt Capital embarked on a 100-day, 70,000 miles, 24-country due diligence trip of the world we called Investment Trek. Me and my business partner, Ryan Hessenthaler, independently circled the globe, all the while talking to economists, money managers, stock exchanges, ETF and index providers, central banks, and government officials in the world’s most important financial markets. We produced more than 60 research reports and videos, many which can still be found at

Our efforts were richly rewarded with knowledge, insights, and many friends and contacts around the world.  Every week since Investment Trek, we have connected or heard from a source gained from our travels. U.S. equities have outperformed broad international markets for many years, but relative performance has shifted in favor of international markets in 2017. Many investors and financial advisors find themselves significantly under-allocated to international markets. It is time for investors to take a fresh look at international financial markets. As we approach mid-year 2017, we want to highlight many of the principles we learned from our 2015 Lunt Capital Investment Trek:

“You must unlearn what you have learned.”

– Yoda from Star Wars Episode V: The Empire Strikes Back

Do we recognize the global opportunity set?

We will start with a statement that sits at the core of our investment philosophy: The United States is the greatest country in the history of the world, and it has been the home to the greatest investment opportunities in history. U.S. political and economic freedoms have combined to create a dynamic, growing investment environment. U.S. investments should act as the foundation for any U.S. dollar-based investor. However, a “home country” bias has led many to either ignore international investing, or to embrace an investment mindset that segments the world in two buckets: 1) the U.S., and 2) everything else. Here is another statement we believe: Over the next 20 years, the U.S. economy will continue to grow, but it is a near certainty the United States’ portion of the total global investment opportunity set will decline. As Wayne Gretzky famously said, “I skate to where the puck is going to be.” The puck is going international, and savvy investors can’t and won’t ignore the opportunities for growth that will come from international investing.

How do most investors approach international allocations?

As mentioned above, most investors think in terms of two equity buckets – the U.S. bucket, and the bucket with anything and everything international. Typically, this international bucket includes a very broad basket of countries and industries that are capitalization weighted (the allocation is weighted according to the size of the company). Discussion around any segmentation of the international bucket centers on categorizations of “International Developed Markets” and “Emerging Markets.” The largest debates center how to categorize countries – should Korea and Taiwan be categorized as developed markets or emerging markets? Weighting by market capitalization leads to large allocations and out-sized influence to a handful of countries, such as Japan, U.K., and Germany in the developed bucket, and China in the emerging bucket. Other countries with smaller allocations become completely insignificant to investment returns.

What do we notice when we review the international opportunity set?