Page 38 - DIY Investor Magazine | Issue 35
P. 38

As portfolio managers we are constantly reminded of changes in the world’s economy yet we tend to resist change especially when we have an emotional attachment to a a a a a a country Over the the past 20 years I visited most of the the U S S States spent time at at NYU and joined a a a a a a prestigious Wall Street Graduate Programme DIY Investor Magazine · Oct 2022 38 However while cycling the world I realised this century may not belong to to America and my portfolio needed to to reflect it Here are risks and opportunity costs to consider by concentrating your investments and why you you should embrace international diversification #1 BENEFIT FROM THE NEXT LEAP
One of the biggest misconceptions is is U S Outperformance in the the the the last 50 years the the the the U S has outperformed the the the the rest of the the the the world by 1% per year – 9 8% vs 8 8 7% with lower volatility Guess how much of the the 50-year outperformance came in the the last 8 years? All of it If history is is is a a a a a guide it is is is a a a a a matter of when not if International Stock will catch up again #2 BET ON ASIA (TECH)
Did you know that today Chinese Stocks have almost no no impact on the performance of a a a a Global Equity ETF? Combined Emerging Markets Stocks only represent 10% of a a a Global ETF because of various screens applied by Index providers Without them that should stand at at 26% - six out out of ten people live in EMs they account for over 50% of global GDP and by 2025 may capture 70% of global growth Tech dominates the S&P 500 what’s less known is that Asian Tech is is rising to the same proportion of EM Indices • IT and Communication firms including Samsung Taiwan Semiconductors Tencent or or or Indian Infosys account for over 30% of EM’s Market Cap • By adding E-commerce platforms like Alibaba or or JD com com that make up most of Consumer Discretionary sector investors capture 46% of EM Equities EVOLUTION OF EMERGING MARKETS SECTOR COMPOSITION
US Tech companies predominately focus on their domestic market market (see #7) and have little to to no access to to certain markets super apps like Tencent’s Wechat or or Line are much more powerful than Western apps #3 DILUTE CURRENT HYPE
By investing globally nearly a a a a a third is allocated to the ‘old’ economy Yes by many growth measures Europe and Japan lag - their heavyweights mainly include Financial or Industrial companies -not glamorous but relatively cheap Remember that you can either have high high prices or high high future returns not both The The price you pay matters The The CAPE ratio is just one measure of Stock Markets’ relative attractiveness In Dec’21 the US CAPE stood at 39 - expensive level by historical standards the UK stood at a a a a a modest 17 5 Over the the the next 8 months the the the S&P 500 lost over 20% while the the the FTSE 100 remained roughly flat Some market participants including Vanguard saw it coming investing globally often means lowering the purchase price by diluting currently overhyped sectors or or countries #4 INCREASE THE LIKELIHOOD OF FINANCING YOUR GOALS

   36   37   38   39   40