Drilling down, the U.S. has also been surpassed in growth in the corporate sectors by some global countries. Despite the U.S. being relatively overweight in information technology (or IT) (See Figure 2), some of the most innovative and disruptive IT companies have come from Europe, Japan and Korea. Even with the U.S.’s dominance, the IT sector outside of the U.S. market is substantial, and long-term opportunities still exist.
Different regions around the globe have different sector concentrations, and having investments that center around just one country or region can result in a portfolio that is overweight to one or more sectors. For example, although the MSCI U.S. All Cap Index accounts for a significant proportion of the global equity investment opportunity set, it is not
evenly spread across all sectors. While the U.S. All Cap Index accounts for over 70% of the global IT sector, it accounts for much smaller proportion in areas such as telecommunications and materials.
Investing internationally gives investors the opportunity to take active positions in sectors of the world economy where the U.S. may be relatively underweight or overweight. For example, Australia is rich in natural resources and has benefited from the seemingly insatiable demand from emerging markets. U.S. investors can therefore access the materials sector far more easily if they widen their horizons to include countries with more exposure to materials. Entering these countries through a closed-end fund is one way investors can take advantage of growing sector exposure and growth abroad.
Market Realist – The global corporate landscape has changed
The global corporate landscape has changed drastically from what it used to be. US consumers have no qualms about using foreign products. However, US investors still tend to gravitate toward home. Should this change in order to go along with the shifts in the global corporate landscape?
For example, according to Fortune, nine of the top ten largest electronic makers are non-US companies.[1. source: Oppenheimer] The world’s largest TV and smartphone maker is Samsung, which is based in South Korea.[2. source: Fortune] Of the world’s top three automakers—Toyota (TM), Volkswagen (VLKAY), and General Motors (GM)—only one is American. American consumers purchased more automobiles from Europe and Asia than from US automakers in 2014.[3. source: company reports, Oppenheimer, Detroit News]