The U.S. is the biggest economy by far. But here’s an interesting fact, the United States only accounts for roughly 36% of the world’s total market capitalization — down from about 45% in 2003. That means there is over 60% of the world’s companies by market cap sitting outside our borders. For many retirement investors, this is a missed opportunity as the “safety of U.S.” is the focus for many.
International stocks are leaders in almost every sector, from tech to consumer products. There’s a good chance you have a Korean TV, drive a German automobile and have laundry soap made by a firm in the United Kingdom. And as our world’s economies become ever more linked, international stocks have become less about where they are domiciled. By focusing on the U.S., many investors are simply missing a huge opportunity set.
To that end, international stocks should be part of everyone’s portfolio. And that includes retirement investors.
Here are three ways to add a dose of international stocks to your portfolio.
As we said in the opening, many international stocks are giants in the fields. And you can’t get much bigger than Anheuser Busch Inbev NV (ADR) (NYSE:BUD). Since swallowing rival SABMiller, BUD now controls a whopping 27% of all the beer consumed in the world, from cheap, ice-cold domestic stadium beer to more refined craft brews. That’s an insane market share that reeks of near-monopoly status.
And BUD is only getting bigger.
The brewer has focused on emerging markets for its next wave of expansion and it has set its sights on Latin America and China. With both areas only boosting their beer consumption, Anheuser Busch should have been able to continue growing its revenues swiftly over the next decades. That will help pay its earnings and the costs associated with buying SABMiller.
For investors looking for a great intentional stock, this BUD’s for you. The cherry on top of it all? Its great 3.5% yield.
For investors looking for a way to add a dose of international stocks through a core exchange-traded fund (ETF), indexing superstar Vanguard comes to mind. And the Vanguard FTSE All-World ex-US ETF (NYSEARCA:VEU) is their best choice.
VEU tracks the FTSE All-World ex US Index. This index tracks the return of large- and mid-cap stocks located outside the United States. Over 50 different countries are represented in VEU’s 2,670 different holdings. The real beauty is that its 50 countries include both developed nations as well as emerging markets. That makes getting exposure to Germany’s multinationals and China’s fast growers accessible with one ticker.
Returns for VEU have been less than ideal, returning only 3.22% annually since 2007. That return is actually a vast improvement in recent quarters as the dollar has finally begun to descend. And that return should continue to grow if/when the dollar’s previous relationship with our currencies returns.
In the end, VEU’s portfolio is chock-full of international stocks that are household names and multinationals. That makes it a great index fund for retirement investors or anyone for that matter. Expenses are a Vanguard-low 0.11%.
For investors looking for an active way to own international stocks, the Fidelity International Growth Fund (MUTF:FIGFX) makes an ideal choice.
FIGFX’s manager — Jed Weiss — looks at the unloved and tarnished to find international stocks with great long-term growth prospects, but low prices. That search has Weiss and his team looking in both developed and emerging markets for deals.
That strategy of GARP or growth at reasonable price has been pretty profitable for investors in FIGFX. The fund is up more than 24.14% in the last year and it has managed to record a 3.92% annual return since 2007. That amount has managed to best both the broader EAFA index as well as the average international growth fund.
The only downfall could be FIGFX’s expenses of 0.99%. While that’s not insane by any means, it’s still a decent hurdle to overcome. But with Weiss’ prowess at picking great international stocks with plenty of growth behind them, jumping over that hurdle should be easy.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.