Think Locally, Invest Globally

Companies outside the United States provide many of the products we use or consume every day—even some of our most iconic brands. When was the last time you drove somewhere without seeing a Toyota car? How many of your friends have Samsung televisions? Have you recently used a BP filling station, or drank an imported beer? These products are so popular in American markets, investors may not consider that if they focus exclusively on the US market, they are missing out on opportunities in many successful foreign-owned companies. Maintaining an investment portfolio that includes a mix of US- and non-US domiciled companies can help investors capture best-in-class opportunities across the world’s markets and offer strong participation across the entire market cycle.

Mind the gap

There are many potential benefits to investing globally. First, a global allocation widens the opportunity set from which to source investments. As of March 31, 2022, 37% of the global market capitalization, as represented by the MSCI ACWI IMI index, was located outside of the United States.1 When you widen your investment horizon, you’ll find a number of best-in-class companies, like chipmakers in Asia or luxury goods or pharmaceutical companies in Europe. In addition, in countries with less-efficient markets, there can be greater investment opportunities. That’s because many non-US markets have fewer analysts covering locally domiciled companies, and a relative lack of high-quality research can inhibit efficient pricing. Investors are thus able to identify potential opportunities that others have missed.

A common refrain we’ve all heard is “buy low, sell high.” A stock that is trading at a deeper discount versus its perceived value than its industry peers can offer more upside potential. These valuation gaps can be prominent across regions, too. A US-based industrials company may be trading at a premium versus its non-US peers due to differences in demand, taxes, regulation or other regional discrepancies. A global portfolio may open the door to uncover and invest in these deeply discounted companies.

Tech, tech, tech, boom!

Information technology companies are a main driver of US market performance. The sector makes up over one quarter of the S&P 500 and MSCI USA indexes. This year’s decline in technology stocks reflects a combination of factors, with rising interest rates being an important and somewhat misunderstood culprit.