A question I often ask my adviser clients is how they’re investing in international markets. The answers vary, with the majority of advisers using managed funds or ETFs and some of these also investing in specific stocks on global exchanges.
Once we have discussed the how, my next question is what sort of exposures they are investing in. Are they looking at various thematics and investing into a particular sector such as healthcare or technology, for example? Or are they taking a country specific view and investing in the US or emerging markets, based on their view of the growth potential of that market?
Based on my clients at least, it appears that investing in thematics is particularly popular, and this makes sense when you consider the reasoning behind it – themes are easy to understand and explain. For example, someone may invest in global healthcare on the basis that, as the general population grows, life expectancy increases, and living standards rise along with access to technological advances, there will be a greater demand for medical equipment or pharmaceuticals to sustain the quality of life. Another popular theme is investing in technology. Again, a straightforward investment case. We are becoming more dependent on technology in our lives, and, as such, the demand for new products, research and development will only continue, which lays the path for continued growth in technology companies.
When it comes to investing internationally and taking a more country based view, advisers seem to be more wary because it can be seen as “riskier”. A broad-based international exposure is normally preferred, such as a MSCI World Index proxy, which negates the need for taking a country specific view.
Advisers sometimes feel like they need to know all of the ins and outs of the political framework and changes to legislation, before they can make an informed decision on whether to invest in a specific country or region. I do not disagree with this, it is certainly a logical place to start and may influence the decision to invest. However, what we need to consider in this day and age is that where a company is listed or headquartered may not be the place where it derives most of its sales or revenues. Minor geopolitical instability is not affecting companies like it used to, because at the end of the day global economies want to facilitate trade. Media commentators in late 2016 highlighted concerns about the pending election results in France, the political instability in Italy and the Brexit referendum outcome as being reasons for not investing in the Eurozone. What has transpired since then? It has been business as usual. Whilst I would, of course, still advocate the need for a strong investment case and a solid due diligence process when considering an investment, it’s important not just to consider the stock’s place of listing. It becomes imperative to understand what’s under the bonnet and see which countries are contributing to the company’s bottom line.
To learn more about investing in international markets, we discuss 3 international investment opportunities in our latest special report. Request your copy.