Why You Should Look for Investment Opportunities Abroad
While investors shouldn’t abandon the United States, we believe they should be raising their allocation to international equity markets and look for opportunities abroad.
Market highs are not the same as market tops, and stocks reach new highs fairly often.
We’ll explore whether record highs signal a top for equity markets or whether there’s still some room for growth in the current bull market.
The toll of the dollar on the US tech sector has not been as heavy as extolled. This sector continues to display strength, especially mature companies, and investors need not fear an exogenous shock like the tech bubble burst of 2000.
Although the valuation multiples for the tech sector are higher than its historical averages, the prices are supported by robust earnings growth.
The primary reason for tech strength is the fact that most tech giants have effective currency hedging techniques in place.
Despite the currency headwinds plaguing the sector, technology has managed to register a revenue growth rate of 5.5%, second only to healthcare , among all the S&P 500 sectors.
The US technology sector was expected to be the worst hit due to the rise of the dollar, as almost 60% of its revenues are estimated to come from abroad. This is more than any other sector in the S&P 500.
Treasuries are a critical part of a portfolio, as they add great diversification benefits.
Diversification is key to achieving risk and return goals. Adding a low yield, less volatile security adds value to a portfolio.
Technology stocks have outperformed the S&P 500 over the last six years, when interest rates have been close to 0%. Low interest rates do not necessarily lead to underperformance of technology stocks.
You should aim to diversify your portfolio with investments abroad. Europe (EZU) (VGK) and Japan (EWJ) are benefiting from monetary stimuli.
Mixed economic reports continue to be another major tailwind for US equities. Mixed data mean that a June rate hike isn’t in the cards and an autumn rate hike is more likely.
Rising stocks have been buoyed by various factors, including the accommodative monetary policy of the Federal Reserve and robust US corporate earnings.
Historically, small caps have been more sensitive than large caps to the reduction in returns associated with monetary tightening.
In 2012, there were roughly five Americans of working age per retiree. According to forecasts, this ratio is likely to decline to four working age Americans per retiree by 2020.
With interest rates set to rise later this year, concerns about the federal deficit are likely to take center stage again.
Dividend opportunities lie in the financial, technology, and healthcare sectors. Currently, the energy sector (XLE) has one of the best dividend yields at 2.9%.
Move out of momentum stocks, as volatility levels are likely to stay high. While defensive sectors usually do well during volatile times, this time may be an exception.
Emergency accommodation has overstayed its welcome, and keeping rates excessively accommodative almost certainly holds an increased risk for markets.
But if I knew how to manage my portfolio safer and smarter than most hedge fund managers, I could realistically grow my wealth.