We may be in the midst of a domestic trend, but we’re firm believers in maintaining a global strategy to be successful over the long term, and a June article in The Wall Street Journal highlights some of the benefits of a global, go-anywhere investment approach.
In “A Smarter Way to Invest Globally?”, Javier Espinoza notes that global strategies offer investors a wider range of opportunities. “With a global charter, portfolio managers have more options as to how to exploit a business or economic trend in a particular part of the world,” Espinoza writes. Although Espinoza focuses on portfolios managers, individual investors can easily track global market trends in their own portfolios. Subscribers to NoLoad FundX, for example, employ a strategy that can lead them to invest entirely in foreign funds or entirely in domestic funds – or to hold a mix of both domestic and foreign funds. The system steers us to what areas of the market are doing well now.
Better performance is another potential benefit of global investing, Espinoza writes: “..funds with a global bent have broader latitude to shop around the globe, which might boost returns.” We’ve seen this recently with NoLoad FundX’s Monthly Upgrader Portfolio, which outperformed both the domestic S&P 500 index and the international EAFE index for the 10 years ending June 30, 2012 by staying flexible.
The past decade included a five-year stretch (2002 -2007) when internationals outperformed and a five-year period (2007-2012) when U.S. stocks did better. But over the full 10-year period, international and domestic markets had fairly similar returns: the S&P 500 gained an annualized 5.3% for the 10 years ending June 30, 2012, while the EAFE (Europe AustralAsia Far East) index gained 5.0%. The Monthly Upgrader Portfolio returned an annualized 6.9%, beating both indexes for the full 10-year period by increasing exposure to foreign funds when they were in favor, and buying into domestic funds when they outperformed.
In the Wall Street Journal, Espinoza suggests that this ability to respond to changing markets is yet another reason for investors to go global. “As conditions change, a global portfolio manager may also be better positioned to adjust exposures than an individual with separate funds for U.S., foreign developed-market and emerging-markets stocks, says Matthew Lemieux, a research analyst with Thomson Reuters Corp.’s Lipper unit in Denver.”
Our global approach has us currently invested entirely in U.S. funds, primarily dividend and large-cap growth funds. But we know that the domestic trend won’t last forever. Markets change – and global investors must be willing to change with as well.