Marcus by Goldman Sachs is excited to share this insight from our friends at Goldman Sachs Asset Management Strategic Advisory Solutions. (We’ll refer to them as our colleagues in Strategic Advisory Solutions throughout this piece.)
Take a look at your portfolio. Of the stocks you own, are most of them from companies based in the US or do you have a few “passport stamps” aka international stocks?
It’s a timely question to ask as there’s been a lot of buzz about international equities. Especially as some countries start to rebound after the pandemic’s economic shakeup, some experts think non-US stocks may be worth checking out.
In a new report, our colleagues in Strategic Advisory Solutions looked at how investors have historically approached international stocks and why they’re on the investing radar right now. Here’s a look at what they found:
Typically, we’re fans of starting off with some background, but with this topic we’ll jump right in. Why is everyone talking about equities from abroad right now?
Part of it has to do with international stocks’ potential. Let’s look at Europe as an example.
European companies’ first quarter earnings delivered the largest positive results since the financial crisis of 2008, according to analysts in Strategic Advisory Solutions. Despite that news, stock prices haven’t jumped up too far in response. And analysts think that earnings will continue to strengthen as economies rebound from the impact of Covid-19. Basically, this combination of lower prices and potential for growth could make it a good time for interested investors to consider international stocks.
There’s also historical data that shows international equities have done well in the past. On average, each year more than 75% of the annual top 50 performing global stocks are from companies that have been based outside of the US over the last decade, according to our colleagues in Strategic Advisory Solutions.
While opportunities abroad may be promising, investors actually prefer to stay close to home. Our colleagues in Strategic Advisory Solutions call this “home country bias,” and they’ve noticed the habit in professional investors – US investors, for example, tend to invest in US-based companies.
In a recent analysis of 1,600 portfolios, analysts in Strategic Advisory Solutions found that international stocks made up less than 28% of investors’ total stock holdings. Compare that to the global equity market cap – that is, of all the equities available on the market – where the split is closer to 41% international stocks and 59% US stocks.
But it’s not just US investors who display home country bias – anecdotal evidence reveals that investors abroad also tend to favor stocks from their home country . Looks like the phrase “stick with what you know” comes up in investing, too.
For the last decade, US equity returns have outperformed most other countries, so it’s not surprising that investors are choosing US equities – after all, it’s nice to see your portfolio balance go up!
But as our colleagues in Strategic Advisory Solutions point out, avoiding international stocks could mean missing out on attractive returns. And if your portfolio is US-heavy (or exclusive), international equities could add some diversification, a helpful investing concept we like to talk about.
If you’re looking to globalize your portfolio a little more, it’s a good idea to do some research to see what equities might make sense for you or check in with your financial advisor, who could offer some suggestions.
You could also consider assets like mutual funds or exchange-traded funds (ETFs) that include non-US equities. That way, you don’t have to pick individual stocks – these funds are like “baskets” of investments that can include a collection of different securities, like stocks, bonds and more.
There are many options to choose from – as of June 2021, there were nearly 1,000 mutual funds and ETFs across the Morningstar Foreign Large, Foreign Small/Mid, and Diversified Emerging Markets categories, for example. Now, there are some key differences between ETFs and mutual funds (like how they are traded or taxed) so if you have questions, check in with your advisor or review our guide to ETFs vs mutual funds if you want to learn more. And remember, all investing involves risk, so you’ll want to keep that in mind if you’re making any portfolio shifts.
When it comes to stock picks, investors generally don’t venture too far from home. (And in the last year, many of us really couldn’t go far!) But if you’re now interested in going abroad – with investing decisions – there could be some good opportunities ahead.
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