Investing Beyond The Borders
By Charissa Cashin, Director Fund Product Management and Development – Principal Funds After World War II, the U.S. became the world’s undisputed economic leader. American investors looking for a wide range of opportunities needed to look no further than their own back yards. Investing outside the U.S. was seen as unnecessarily risky. But today, even with the Greece-triggered euro commotion and the China stock market turmoil, those who think international investing is too risky should keep the following in mind. In China, India, and Brazil alone, the growing middle classes have propelled these economies to the size of the industrialized “G7” countries. By 2050, these countries are predicted to make up nearly half of world output, far exceeding the G7. While America undoubtedly still has a wealth of innovative companies and market leaders, opportunities abroad are increasingly plentiful. And although international investing may not be for everyone and certainly involves some risk, ignoring the opportunities beyond our borders means passing up on the potential for additional growth. Markets outside the U.S. may offer some of the best investing opportunities available right now. Technology companies in Asia are great examples. Everyone thinks of Apple (NASDAQ: AAPL ) when they think of tech stocks, but what they don’t always realize is that a lot of its components are made overseas. Those manufacturers are making a lot of money, but they’re not as overexposed as Apple – which creates a buying opportunity. There are also good prospects for under-appreciated growth in Europe, which has a lot of global, export-oriented companies. And with the strengthening of the dollar, there may be more purchasing power for these products outside of Europe. Emerging markets may be another area of opportunity. After sub-par performance over the last few years, some of these markets may offer outstanding values. Active managers keep an eye open for values like these that can lean to uncommon buying opportunities. International investing is an important way to build diversification in your portfolio. That’s because international equities don’t always move in the same way as domestic equities. When international equities are up, for instance, domestic equities may be down – and vice versa. This kind of potential for low correlation can help reduce a portfolio’s overall volatility. Add to that the potential for growth available internationally, and you have some very good reasons for considering investments beyond the U.S. borders.