The Right Way to Invest Globally

U.S. Investors Have Ramped Up Their Holdings of Foreign Stocks, But Some Do It the Wrong Way

U.S. investors have increased holdings of foreign stocks, but many could still go further. Getty Images

Investors are going to the ends of the earth.

Shares of foreign companies are making up an increasingly large chunk of U.S. investors’ stock portfolios, as barriers to investment fall, global economies integrate and the potential benefits of international diversification are widely embraced.

More than a quarter of the money in U.S. equity mutual funds and exchange-traded funds is in foreign-stock-focused funds, up from 14% in 2000, according to the Investment Company Institute, a trade group. Investors hold nearly $2.6 trillion in those foreign-focused funds, up from less than $600 billion back then.

Yet not every investor is on board. Vanguard Group, the large financial-services firm, says nearly a quarter of the 401(k) accounts it oversees own no foreign-focused funds at all, though that is down from 66% in 2004. Rival Fidelity Investments says only 12% of the assets in its average brokerage account are in funds that focus on foreign stocks or securities issued by companies based abroad.

They may be missing out. Experts say a stock portfolio that is widely diversified internationally can provide protection against a prolonged downturn in an investor’s home market. In addition, some market analysts say U.S. stocks look relatively expensive and many foreign markets appear less pricey, which could increase their chances of outperforming in coming years.

Here’s what you need to know about investing in foreign stocks, the right amount to hold and the smart way to go about it.

Why Hold Foreign Stocks?

Investors around the world show a strong preference for stocks in their home countries—a phenomenon known as “home bias.”

With domestic stocks near record highs, that bias may seem understandable to U.S. investors. The S&P 500 is up 8.8% this year, including dividends, through Thursday, according to FactSet, after logging double-digit gains last year and in three of the prior four years.

Foreign stocks have been hit or miss. Germany’s stock benchmark has gained 2.5% this year through Thursday, and India’s has gained 25%, but Japan’s is down 5.3%. Saudi Arabia’s stock market is up 22%, according to MSCI, but that market won’t open to foreign investors until next year.

Such a range of performance, however, could end up helping an investor if U.S. markets are sagging.

For example, an investor in the broad Wilshire 5000 index of U.S. stocks generated an average loss of 0.4% annually from 2000 through 2008, encompassing two major market drops. But if 20% of that stock portfolio had been invested in the MSCI World ex USA Index—which tracks markets in 22 other developed countries—that investor would have logged an average gain of 0.2% annually, according to Chicago-based investment researcher Morningstar. A portfolio split evenly between foreign and domestic stocks would have gained 0.9% on average.

Sometimes, stocks around the world move in lock step. But the experience of Japanese investors demonstrates the risk of prolonged underperformance in a domestic stock market. The benchmark Nikkei Stock Average fell 82% from its all-time peak in 1989 to its financial-crisis low in March 2009, excluding dividends. During that same period, the Dow Jones Industrial Average rose 152%.

“The real risk that you face is that you’re going to have crummy returns in one part of your portfolio over 30 years. And you’re certainly reducing that risk if you are internationally diversified,” says William Bernstein, co-principal of portfolio manager Efficient Frontier Advisors in Eastford, Conn.

Owning shares in large multinational companies isn’t the same thing as owning shares of companies in foreign markets, according to Mr. Bernstein and other experts. International diversification means being exposed both to what is happening in foreign stock markets and to the swings in the value of foreign currencies, they say.

U.S. multinationals often try to smooth out that impact by hedging against currency fluctuations, as they aim to report results in dollars.

“You have to invest in a company whose executives are trying to post a profit in local currency,” says Bruno Solnik, a finance professor at Hong Kong University of Science and Technology who wrote an oft-cited 1974 study on international diversification.

How Much Foreign Stock Should You Own?

The average 401(k) account that owns stock or stock funds has less than 18% of its stock portfolio in foreign stocks, according to a February study by Columbia University finance professors and others that looked at more than three million accounts.

By contrast, foreign firms represent about 50% to 60% of the market value of all stocks in publicly traded companies. Some experts believe that could be a good starting point for deciding how much foreign stock to hold.

Investors should consider whether they are exhibiting home bias in allocating their stocks. U.S. investors, for example, shouldn’t give special standing to U.S. stocks, says Clifford Asness, co-founder of AQR Capital Management, an investment firm in Greenwich, Conn. Mr. Asness co-wrote a study published in 2011 titled “International Diversification Works (Eventually).”

Many investors, however, won’t be comfortable going too far afield. Experts suggest that typical investors should hold at least 20% to 30% of their stock portfolios in shares of foreign firms.

Vanguard, Fidelity and T. Rowe Price GroupTROW -0.34% another fund giant, typically allocate about 30% of the stocks in their target-date retirement funds—which generally hold a mix of stocks and bonds and grow more conservative as investors approach retirement—to shares of foreign firms. Many investors are enrolled in such funds automatically through 401(k) plans, which is one reason ownership of foreign stocks has risen.

One important consideration: What can you live with through thick and thin? Avi Norowitz, a 30-year-old systems analyst who lives in Jersey City, N.J., says he decided to invest in foreign stocks earlier this year and put about 20% of his stock portfolio into the Vanguard Total International Stock Index Fund, which charges annual fees of 0.14%, or $14, on a $10,000 investment, and invests in 45 countries around the world.

He says he is increasing the share of foreign shares in his portfolio to nearly 40% over the next six months or so. But Mr. Norowitz says that if he went much higher, he might end up regretting the move if U.S. stocks strongly outperformed foreign shares and he felt left behind.

“It would be hard to go, say, 10 years in a period where the media says the stock market is doing great, and my stocks are doing terrible,” he says.

Frank Warnock, a professor at the University of Virginia who has studied investors’ tendency to favor home-country stocks, says an individual investor’s circumstances may also play a role in figuring out how much foreign stock is appropriate.

Investors who own real estate abroad or are employed by a foreign-based company might lower their foreign stock allocation to compensate, for example. On the other hand, if investors hold a significant chunk of U.S. bonds but no foreign bonds, that might be a reason to consider increasing their foreign stock allocation, says Mr. Warnock, who estimates one-third of his equity portfolio is in foreign stocks.

What Is the Right Way to Invest Abroad?

Buying foreign stocks may seem intrepid. But rules of thumb that apply in the U.S. also hold true overseas.

Investors in low-cost funds that passively track a broad range of U.S. stocks will often fare better than investors who bet on fund managers who try to beat the market, in part because investors in actively managed funds are at risk of underperforming and in part because those funds often charge higher fees that eat into returns.

The same is true abroad, and active fund managers in foreign markets may also lack information more readily available to locals, says Mr. Bernstein, of Efficient Frontier Advisors.

“Who’s the patsy at the table there?” says Mr. Bernstein. “It’s the American fund manager.”

He recommends funds from Dimensional Fund Advisors that allocate their investments across many countries, such as the DFA Large Cap International Portfolio, which invests in developed markets, and the DFA Emerging Markets Portfolio. The funds charge annual fees of 0.29% and 0.57%, respectively, according to Morningstar. The funds are available to individuals through fee-based advisers and in some 401(k) plans, according to the company.

Other DFA funds allow investors to tilt their foreign stock portfolios to value stocks and small stocks, Mr. Bernstein says.

By contrast, investors who buy one or two single-country ETFs could end up increasing their risk, rather than lowering it, experts say.

Investors also risk giving too much weight to emerging markets or frontier markets, which are often even smaller and riskier. Emerging markets, for example, represent just 11% of the value of companies in the MSCI ACWI + Frontier Markets Index, and frontier markets represent just 0.3%, with the remaining nearly 89% of the value in companies in the index in developed markets.

Be alert, as well, to challenges that may come with investing in certain countries. In China, for example, there are often limits for foreign investors on buying shares in Chinese companies.

Is It a Good Time to Buy?

Owning foreign stocks isn’t a get-rich-quick scheme. But at the moment, it might be an opportunity to get a bargain.

That’s because a widely watched ratio of stock prices to corporate earnings popularized by Nobel Prize-winning Yale University economist Robert Shiller shows that U.S. stocks look pricey. That could point to subpar returns in years to come.

Stocks elsewhere look inexpensive by comparison, says Joachim Klement, chief investment officer at Wellershoff & Partners, an investment consultancy based in Zurich. He argues that stocks in many other countries are therefore likely to generate higher returns over the next five years.

For example, Mr. Klement estimates that U.S. stocks will generate a cumulative 7% return above inflation over the next five years, based on their Shiller price/earnings ratio. By comparison, he says that stocks in France, India, Italy, Mexico and many other countries could generate returns of more than 50% over the same period.

“The U.S. stock market at the moment has one of the lowest expected returns for the next five years of all the developed markets,” says Mr. Klement. As a result, he says, “This is probably a good time for U.S. investors to broaden their international diversification and buy stocks outside the U.S.”

What’s In A Name? If it’s “Made in USA,” Quite A Lot.


Deciding when something can be called “Made in USA” is harder than you might think. You can thank both the Federal Trade Commission and the state of California for that.


Federal law says goods that are “all or virtually all” manufactured in the U.S. qualify, though the FTC doesn’t define what “virtually all” means, leaving some wiggle room. The FTC decides on a case-by-case basis when disputes arise over use of the phrase. That can be frustrating for producers, many of whom would prefer it spelled out.

But a bigger problem is California. State law there is explicit and clashes with the federal standard: If a product contains just one imported screw or rivet, it cannot carry the label. California is the only state with such a rule.

That’s not a big problem for something simple like bath towels or plastic lawn chairs. But with more complex goods, such as electronics or machinery, it can be difficult to assure the domestic pedigree of all the raw materials and component parts. In some cases, there are no domestic suppliers or their cost is prohibitive.

Element Electronics Corp., a television company based in Eden Prairie, Minn., is just one U.S. company that’s had to wrestle with this issue. Element is trying to revive the industry at a factory in South Carolina. Its solution is to label its goods “Assembled in the USA.”

Manufacturers have tried to get California to relent. In 2011, the California assembly unanimously approved a bill to amend the law so it would harmonize with the FTC rule. But the move eventually floundered in the face of staunch opposition from consumer and trial lawyer groups.

California has become a minefield for producers like Lifetime Products Inc., a Clearfield, Utah maker of portable basketball hoops. Lifetime recently settled a class-action suit brought against it over labeling hoops that were sold at Sports Authority stores in the Golden State.

“We make everything in Utah—including our own metal tubing and the plastic parts,” saysRichard Hendrickson, the company’s chief executive. The woven netting that came with the hoops in small plastic bags, however, is imported from China and ran afoul of the law.

Many companies today follow the California rule, even when they have no intention of selling there. The risk is simply too high, since complex distribution networks sometimes send goods to markets where they were not intended. In the meantime, companies including Lifetime have shifted focus to the FTC, hoping to get legislation passed that would give the federal law priority over state regulations.

Export-Import Bank helps Wisconsin businesses create jobs

As the reauthorization saga of the US Ex-Im bank continues, today we publish yet another opinion favoring reauthorization.  These arguments make sense  and provide a generally correct view of the situation.  Our own view on the US Ex-Im Bank situation will be published in the upcoming issues of this publication.

Milwaukee-Wisconsin Journal Sentinel

House Budget Committee Chairman Paul Ryan (R-Wis.): Ryan opposes the Export-Import Bank.
House Budget Committee Chairman Paul Ryan (R-Wis.): Ryan opposes the Export-Import Bank.
Associated Press

If world markets really worked the way Rep. Paul Ryan wishes they did, he’d be right about the need to eliminate what he calls a “strange collusion of big business and big government,” an obscure little federal agency called the Export-Import Bank.

But world markets do not work that way. Governments routinely support domestic businesses; Chinese export credit subsidies were about 50% higher than those provided by the Ex-Im Bank in 2012. Given the reality of the global economy, the U.S. needs to be in this game to compete. And the U.S. government needs to play a role.

Killing the bank, as critics such as Ryan advocate, would kill American jobs, including jobs in Wisconsin. The bank’s charter expires Sept. 30, and, for the first time, this efficient agency may be in jeopardy. That could be costly to the state.

It’s surprising, all this huffing and puffing about “crony capitalism” and government waste, because this is a tiny agency as measured against a $3.5 trillion federal government. The Ex-Im Bank had a total operating budget in 2013 of a mere $90 million, the Congressional Research Service reports, and it costs taxpayers exactly nothing to operate; the cost of running the bank is paid by fees and interest charged to its private customers. In fact, the bank returned $1.1 billion to federal taxpayers last year.

We might be more willing to listen to Ryan and his cohorts in this venture if they were more willing to carve up some of the fatter budget hogs — say farm subsidies — but lawmakers of both parties have been loathe to touch those sacred cows. As columnist Robert J. Samuelson of the Washington Post concluded recently, this is “mostly political grandstanding.” We quite agree.

“In a perfect world there’d be no need for it, but the Ex-Im Bank prevents the U.S. from facing a competitive disadvantage with our trading partners based on policies put in place by their governments,” Republican U.S. Rep. Reid Ribble told Journal Sentinel reporter Craig Gilbert.

The Ex-Im Bank is a reasonable way to help American companies climb over such hurdles. The bank, which was created in 1934 by President Franklin D. Roosevelt, makes loans and provides loan guarantees and credit insurance to help foreign buyers purchase American-made products. The bank estimates it supported about 205,000 export-related jobs in 2013.

And while it’s true that the overall effect of the bank’s work is sometimes hard to gauge, that’s hardly a reason to eliminate it and put jobs in Wisconsin and elsewhere at risk.

As the Journal Sentinel article noted, the bank last year authorized a $694.4 million loan to help an iron ore mine in Australia with the condition that it buy hundreds of millions of dollars of equipment from Caterpillar Inc. and two other companies. While the bank claimed that the loan would bolster 3,400 jobs in the U.S., critics of the deal say production at the Australian mine will put downward pressure on prices and harm producers in this country.

One of the loudest critics of the bank has been Delta Air Lines, which competes against foreign airlines that buy their American-made Boeing jets with subsidized loans backed by the bank. Delta may have a reasonable concern, but it’s one that the bank and lawmakers could address, as U.S. Sen. Tammy Baldwin (D-Wis.) has noted. Killing an agency that has helped to support so many other jobs is not the way to address those concerns.

Since 2007, the bank has worked with 183 Wisconsin companies and supported $4 billion in exports in the state, according to statistics provided by the bank. That translates into an estimated 25,500, many of them with small businesses.

If the Export-Import Bank were closed, “it would have a ripple effect throughout the U.S. economy,” says Tim Sheehy, president of the Metropolitan Milwaukee Association of Commerce. He told Gilbert that the argument against reauthorization “crashes on the rocks of reality when it comes to competing in a global market.”

Lawmakers need to face that reality. They should have a healthy debate because no government agency is above tough scrutiny. And if loan procedures need to be tightened to address unintended consequences and legitimate complaints, then they should be tightened. But don’t kill the bank. If the Ex-Im Bank goes away, jobs will go away, too, and some of them will be in Wisconsin.

Broad Street Capital Group announces major expansion campaign

Broad Street Capital Group announces major

expansion campaign to meet surging demand for

its ExportBoost™ program.

18 Merchant Banking Offices to open in multiple countries

in the next 18 Months





“Fly Me To The Moon” UA-USA Air & Space Forum Program Announced

Alert! An International Business Development Opportunity

We are pleased to announce an all-star roster of speakers and panel participants for the upcoming “Fly Me To The Moon” UA-USA Air and Space Cooperation Forum. Do Not Miss one of the most anticipated Air and Space events of the year, as a high level delegation led by the Deputy Chief of the National Space Agency of Ukraine, presents Ukraine’s capabilities in the Air and space Arena and discusses cooperation options with US companies.  Register Today!







To Invest In The Rise Of The Emerging Market Consumer Start By Looking In Their Fridge


It’s not easy for investors to grasp the dynamics of consumer spending in diverse emerging markets. We think the best way is to look inside the refrigerators of people across the developing world.
Refrigerators are more than just iceboxes. Their contents speak volumes about their owners. And their proliferation signals a country’s economic progression. So the fridge and its contents can serve as a guide for investors seeking to tap emerging consumer spending, which is projected to grow eightfold to US$63 trillion by 2030, according to our forecasts, based on OECD data.

Devices Are Deceiving

Emerging consumers defy simple classifications. Some analysts look at income, assets or people per room as a framework. In our view, these indicators are flawed. For example, a Living Standard Measure counts the number of certain items in a home to determine a household’s socioeconomic status. So a person with a laptop, TV, mobile phone and stereo could be classified as rich. Yet in our field research, we’ve met people in countries like Ghana whose ramshackle homes are full of electronic devices but who are quite obviously poor.

Kitchens offer a more honest reflection. Behind the fridge door is an abundance of information that can help us understand who emerging consumers are and how they’re likely to spend money in the future. We’ve analyzed the contents of 70 refrigerators in rural and urban homes that we visited across 12 developing countries from Chile to China. While it may not be a statistical sample, the initial patterns we’ve seen suggest that the inside of a fridge mirrors the status of a home.

Food for Thought

In working-class homes, the fridge is used mainly for efficiency items (Display). It includes basic foods such as eggs, fruits and vegetables and some pre-cooked food. Middle-class fridges stock more indulgences, from alcoholic beverages to chocolate and cheese. And for affluent households, health is a primary concern. So expect to find foods like low-fat Yoghurt or 100% fruit juices.

Why is this important? Because once we understand how people’s tastes change as their income levels increase, we can also figure out how to invest in the consumer evolution as the refrigeration revolution sweeps through a market.

The display below shows penetration of refrigerators in different countries as income levels increase, from 1980 through 2013. In developed markets, more than 99% of households have a fridge. Brazil isn’t far behind. In China, about 86% of homes had a fridge. But in India, by contrast, only about 27% of households were able to chill their food. This is likely to increase rapidly as annual per capita incomes reach US$3,000, which seems to be the tipping point for rapid adoption of refrigeration.

refrigeration revolution The AllianceBernstein Blog

Indulgences in China

Our research suggests that China is in the indulgence phase. So companies that make products like beer, butter and chocolates should benefit from rising incomes. Indian families are still buying fridges, then filling them with efficiency items like milk, yogurt and ready-made sauces. Brazil has already shifted toward health mode, which should see higher-end food producers draw more spending.

Of course, specific investing conclusions differ in every country. Market environments and company fundamentals must also be studied to identify successful portfolio candidates. But by starting with refrigerator shelves, we think investors can gain vital intelligence to understand the people, lifestyles and spending scenarios that will unlock earnings growth in emerging consumer companies

This article originally appeared at The Alliance Bernstein Blog. Copyright 2014.

Read more:

“FLY ME TO THE MOON” Ukraine-USA Air & Space Forum Invite


Alert! An International Business Development Opportunity

Do Not Miss one of the most anticipated Air and Space events of the year, as a high level delegation led by the Deputy Chief of the National Space Agency of Ukraine, presents Ukraine’s capabilities in the Air and space Arena and discusses cooperation options with US companies.  Register Today!


Develop, Finance, Supply & Insure

Originally posted on Merchant Banker's Gazette:

Develop, Finance, Supply Insure    

Are services offered by Broad Street each day.

In crossing the borders, all headaches we cure,

For clients who risk, we hold danger at bay


The deals are global, the problems are massive,

A shepherd is needed to guide business along,

We highlight the issues, and structure financing,

We help sellers export, as their buyers grow strong


We’re Fluent In Foreign and help grow the business

For those who seek to franchise, or invest,

Until they succeed, we patrol cross the borders,

Until YOU succeed, our Team shall not rest


So as you get settled and learn all about

The business of projects and exports and risk.

Remember to smile, as there is no cure

From catching the bug called “Global Deals Disease”


And once you are ready to venture to strange lands,

There is only one thing you can count on for…

View original 20 more words

Here’s How People Define Financial Success Around The World

JULIE ZEVELOFF , BusinessInsider

In a recent survey of affluent people in Asia, Africa, and the Middle East, Mastercard found that people’s definitions of success varied widely depending on where they were from.

The survey looked at affluent people in the region, who are, on average, age 37, have one young child, and have investible assets of at least $200,000. The affluent population is growing quickly in the region, which is expected to be home to 70% of the world’s affluent by 2017.

Mastercard found that overall, in addition to finding satisfaction in buying and owning luxury goods, affluent people in the region view “wealth as the catalyst to experience the world.”

There are, however, some variations by country, as detailed in the map below:


U.S. Seeks to Revise Rules on Gas-Export Projects

Proposal Could Push Back Approval Process for Some Companies’ LNG Permit Requests


Cheniere is well-positioned to export liquefied natural gas. Pictured, its LNG terminal in Louisiana last year. Cheniere Energy/Bloomberg News
The Obama administration said it would perform a more rigorous upfront review of proposals to export liquefied natural gas, offering a mixed bag for the roughly two dozen projects seeking federal approval.

The U.S., which is enjoying a natural-gas boom, is expected to start exporting LNG in significant volume next year. The administration has only approved one export facility, but about 25 additional proposed projects are under review. A few projects far along in the approval process could benefit from the proposed rules change because they could be cleared as others are delayed by the new requirements.

The Energy Department said Thursday that the proposed revisions would require export-terminal proposals to first undergo a more expensive regulatory review by the Federal Energy Regulatory Commission involving an environmental impact assessment before the DOE reviews the permit application. The DOE previously was granting conditional approval either parallel to or before completion of the environmental review, a process that allowed companies to get a project started with a smaller financial commitment.

The proposal could push back the approval process for some companies’ LNG permit requests, while more-advanced proposed projects are expected to be able to jump forward in the queue.

“The proposed changes to the manner in which LNG applications are ordered and processed will ensure our process is efficient by prioritizing resources on the more commercially advanced projects,” DOE Assistant Secretary Christopher Smith wrote in a blog post on the department’s website.

Kevin Book, of ClearView Energy Partners LLC, said under the proposal, energy companies will need to clear the environmental review before they can raise capital or secure loans to build LNG export terminals.

Houston-based Cheniere Energy Inc. LNG +8.94% is the only company that has already attained all the required permits to export natural gas from the U.S. to any country in the world. Its Gulf Coast plant in Louisiana is under construction and on track to begin shipping LNG in late 2015.

Oregon LNG’s proposed export facility in Warrenton, Ore., is the next one in the Energy Department’s queue. Chief Executive Peter Hansen said the company’s request for conditional export approval is probably just weeks away, based on how the department has processed other applications. He said it wasn’t clear whether the revised procedure could change the timeline. Oregon LNG is in good shape to move forward with Asian and North American partners, once the permits are in place, he said.

Mr. Hansen said the DOE’s proposal makes sense; as it stands, coordination between the DOE and FERC could be improved. “When you do sort of look at the fact that a lot of the projects that are fairly high up on DOE’s list—some of those haven’t done much yet. They’re barely real. And yet there are projects that are clearly real much further down,” he said. “Maybe the DOE queue wasn’t really reflective of the real world.”

The proposal is subject to a 45-day public review and comment period before the rules can be made final.

Write to Alicia Mundy at and Alison Sider at

Fluent In Foreign Business

Helping To Grow Your Business Abroad

Merchant Banker's Gazette

published by the Broad Street Capital Group - Merchant Bankers to the world since 1988

Emerging Market Insights

How to make a killing in emerging markets without losing your shirt?


Premier Tier III Data Services for your global expansion

Ideas That Work

Practical Advice for Small Businesses, Entrepreneurs and Non-Profits

Emerging Markets' Business: The Keys To America!™

Unlocking North-American business, capital and consumer markets for Emerging Market Companies

Nu Leadership Revolution Blog

“Helping Emerging Leaders Gain the Competitive Advantage in the Future"

Mike Z's Blog

Exploring the causes of cancer throughout the world

Emerging Markets' Business: The Keys To America!™

Unlocking North-American business, capital and consumer markets for Emerging Market Companies

Bucket List Publications

Indulge- Travel, Adventure, & New Experiences


The franchise professional's resource...

Connect Consulting

We Help Business Stand Out News

The latest news on and the WordPress community.


Get every new post delivered to your Inbox.

Join 218 other followers

%d bloggers like this: