MANAGING YOUR MONEY : THE RIGHT PATH : Going Global With Your Money : Picking stocks--even those of U.S. firms--is tricky. But a mutual fund with foreign flavor can pay off over the long term.
In a nation often criticized for lacking an interest in the rest of the world, it is not too surprising that American investors are often a bit leery about investing in foreign companies.
“We are very myopic--especially the typical investor,” said Miles Gordon, president of Financial Network Investment Corp., a Torrance-based brokerage. With large numbers of U.S. firms to choose from, the typical investor often reasons: “It’s so big here, why go elsewhere?”
However, despite the recent declines in foreign stock markets, an investment portfolio with an international outlook can allow the individual investor to spread out risk and tap into economies that have been growing faster than the U.S. economy, financial advisers say. The best strategy, these advisers add, is to invest in an international mutual fund rather than picking individual securities, which often can be a tricky, complicated and risky process.
Today’s weak dollar makes investing in foreign stocks even more attractive to some financial planners. “You are relatively better off investing outside the dollar,” said Andrew Rojek, senior international market analyst at Merrill Lynch. “This is the time to be investing internationally, even with the weakness in the markets.”
“I think (foreign companies) should be in everyone’s portfolio,” said Jon Markese, director of research at the American Assn. of Individual Investors in Chicago. “But the question is how should they do it.”
The dazzling economic growth of Japan and the upcoming economic unification of Western Europe have lured growing numbers of U.S. investors overseas. In fact, nearly 40% of members in the American Assn. of Individual Investors hold foreign stocks, according to a survey. Of those members that have gone global, foreign stocks make up 7% of their investment portfolios.
Investors who took the plunge this year, however, may wish they had not. After dramatic run ups last year, foreign stocks markets have fallen even more steeply than those in the United States this year. The damage, in dollars, so far: Germany, down 9.7%; Japan, down 36.1%; Canada, down 20.9%. In comparison, the U.S. market has fallen 11.8%.
The Mideast conflict has also turned the economic fortunes of many regions upside down. In simplified terms, nations that are net exporters of oil--such as Britain and Norway--stand to benefit, while importers--such as Japan and Germany--will be hurt.
“Globally, we are in something of a bear market,” Rojek said. “In major European markets, what happens is that the higher oil prices are slowing economic growth in general. It has totally destroyed the economic outlook for Eastern Europe,” which imports most of its oil.
But buying foreign stocks can still be well worth the effort--in the long run.
“Just because other markets are down does not necessarily mean that (international) diversification is a bad thing and you should keep your money at home,” said David Strongin, director of international finance at the Securities Industries Assn. “You are looking more longer term.”
In general, there are three ways Americans can buy foreign equities:
* Buy stocks directly. Americans can buy shares directly on many foreign exchanges. With the Mideast crisis, some analysts favor stocks in oil-exporting nations. But buying individual stocks can be a complicated and expensive process that involves finding brokers or banks that will perform the necessary transactions and widely different commissions and other fees. Furthermore, finding pertinent information--such as daily share price changes--may not be easy.
* American Depositary Receipts. ADRs represent foreign stocks held in trust by a U.S. bank. ADRs are traded on U.S. exchanges and pay their dividends in dollars. Their prices can be found in daily stock tables.
But ADRs are generally limited to the best-known and largest foreign companies, making it difficult to bargain-hunt for lesser known but faster-growing firms.
* Mutual funds. Mutual funds are widely available in various forms and are probably the best way for the typical investor to globalize their portfolios, investment advisers say.
Almost all the major mutual fund firms--including Fidelity, Vanguard and Freedom--offer funds with a basket of stocks and bonds from around the world, a specific region or even one nation. The value of fund shares are printed in daily financial tables.
For the individual investor, the more diverse the fund the better, investment professionals say. Many also prefer global funds, which include U.S. securities, over international funds, which exclude American firms.
“A global fund allows the fund manager to invest in the U.S. and gives the investor a lot more flexibility,” said Diane P. Blakeslee, president of Blakeslee & Blakeslee, a stock brokerage in San Luis Obispo.
Of course, U.S. investors may already be enjoying the benefits of international investing simply by owning shares in major American multinational firms.
“IBM does business all over the world and GE does business all over the world,” said Blakeslee. “Just by buying American you are getting your exposure to the international market.”
TIPS
Here are some pointers from the experts about investing in foreign stocks:
* The declining value of the U.S.dollar against other world currencies boosts the yields of foreign securities. So it is a good time to look overseas.
* Look into international mutual funds. For the average individual investor, the funds are easier to buy into and follow than purchasing stock directly overseas or buying American Depository Receipts, which are traded on U.S. exchanges.
* Seek the most diverse funds to spread out risk and take advantage of growing global economies. Global funds include U.S. stocks and are preferred by many experts.
* If you are wary about investing in foreign stocks but still want to take advantage of global growth, look at U.S. firms with large foreign subsidiaries and sales.
