Buy American? Upscale Investors Look Abroad<\/strong>
\nWell-heeled American investors have been doing something lately that they resisted for decades \u2014 becoming more like their European, Asian and Latin American counterparts and substantially diversifying their portfolios outside their home country.<\/p>\nThere are two reasons for this. The financial crisis and the slow recovery showed them that the United States was not immune to devastating crashes of the kind that wealthy people in emerging markets have tried to hedge against by investing abroad. And second, American investors are worried that their portfolios are going to suffer for the foreseeable future, given the size of the United States\u2019 budget deficit, the weakness of the dollar and the uncertainty over the stock market.<\/p>\n
\u201cI\u2019ve never seen a period in which clients have expressed such an interest in nondollar investments,\u201d said Kent Lucken, managing director at Citi Private Bank. \u201cPeople are spreading their chips around more prudently and I think more wisely.\u201d<\/p>\n
What is different is how directly these investors are going into non-American markets. They are not content with buying international equities or going into an international bond fund. They are looking to invest directly in Chinese private equity, Indian real estate, Brazilian equities denominated in reals and Australian government bonds. They are also opening cash accounts in multiple currencies.<\/p>\n
\u201cInternational clients understand the need to diversify currencies, but this is something new to U.S. clients,\u201d said David Frame, global head of alternative investment at J. P. Morgan Private Bank.<\/p>\n
The people putting as much as 40 percent of their portfolios into nondollar investments are quite wealthy. But consider it this way: What can investors of more modest means learn from what the wealthiest people in the country \u2014 with the best research and advice at their disposal \u2014 are doing with large portions of their fortunes?<\/p>\n
UPSIDE Investors who lived through the 1990s will remember the crises in Asia, Mexico and Russia that shook global capital markets. Investing internationally has always carried risks and it is by no means without perils today.<\/p>\n
But many investors see a different trade-off, one based as much on a stagnant or declining United States as on certain international markets that are growing, if not booming.<\/p>\n
\u201cWhen you make an investment in nondollar currencies, you\u2019re making two investments at once,\u201d said Tony Roth, head of investment strategies at UBS Wealth Management. \u201cYou\u2019re betting the dollar will go down, but you\u2019re also buying another investment. You need to be compensated for that source of risk.\u201d<\/p>\n
He cited the example of buying a one-year Australian government bond, yielding 5.25 percent. He said he believed that the American dollar was going to lose value and the Australian dollar was going to gain it. That\u2019s Part 1. Part 2 is that the Australian government is stable, so an investor can count on receiving that 5 percent annual return. The alternative is less than half of a percent if invested in United States Treasuries.<\/p>\n
\u201cI\u2019m going to receive a return,\u201d he said, \u201cthat more than compensates me for the marginal risk I\u2019m taking.\u201d<\/p>\n
But there are far more risky investments. And the ones that are less liquid \u2014 infrastructure in China, say, or a private equity fund in Brazil \u2014 carry more uncertainty. But like their equivalents in the United States, they provide a higher return, in theory.<\/p>\n
Mr. Frame said clients were investing in Asian infrastructure and Asian private equity by pooling their money with other investors. \u201cThere is a lot going on when a country is growing and developing that is hard to address through the public markets,\u201d he said.<\/p>\n
While there\u2019s an obvious “pull” to international investments, there is also a bit of a “push” out of the United States: investors who are making their portfolios more international are doing so because they believe that the role of the United States in the global economy is shrinking.<\/p>\n
Mr. Roth said the United States contributed 40 percent of global gross domestic product 15 years ago and now contributed 21 percent. He predicted that that figure would fall to 12 percent in another 15 years. Going along with this is the shrinking market capitalization of American stocks compared with global stocks.<\/p>\n
\u201cWe have the U.S. experiencing flat to 2 percent G.D.P. growth, but you have Brazil, India and China with substantially higher rates,\u201d Mr. Lucken said. \u201cEquity investors are investing abroad to capture higher returns and invest ahead of higher growth rates.\u201d<\/p>\n
DOWNSIDE The biggest risk is uncertainty, followed by a lack of knowledge. No one knows exactly what is going to happen, and there are always investors who rush in too quickly without fully understanding the risks.<\/p>\n
Those risks run the gamut from income inequality that could create unrest, to legal systems that have not been tested by foreign investors, to managers abroad without established track records.<\/p>\n
There is also the unforeseen. \u201cI witnessed firsthand the collapse of the Soviet Union,\u201d said Mr. Lucken, a former foreign service officer. \u201cThat speaks to the unique political risks in smaller developing countries.\u201d<\/p>\n
Also, South Korea and Brazil, which are now darlings of investors, were shaken by crises in the 1990s. \u201cThe history of success has been relatively short \u2014 the past 10, 12 years,\u201d said Christopher J. Wolfe, chief investment officer for the private banking and investment group at Merrill Lynch.<\/p>\n
But Mr. Wolfe said clients were investing across all asset classes when they invested internationally and that gave them greater diversification. It is also a big change from the time when \u201cit used to be U.S. stocks and non-U.S. stocks,\u201d he said.<\/p>\n
Like all big changes, there are going to be fits and starts. But after what investors lived through over the last three years at home, some are willing to chance it.<\/p>\n
The rabbi takes confession.<\/strong><\/span>
\nA priest was called away for an emergency. Not wanting to leave the confessional unattended, he called his rabbi friend from across the street and asked him to cover for him. The rabbi told him he wouldn’t know what to say, but the priest told him to come on over and he’d stay with him for a little bit and show him what to do. The rabbi comes and he and the priest are in the confessional.<\/p>\n![\"\"](\"https:\/\/www.technologyinvestor.com\/wp-content\/uploads\/2010\/11\/Rabbi.jpg\" "\\"Rabbi\\"")
<\/a><\/p>\nA few minutes later, a woman comes in and says, “Father forgive me for I have sinned.” The priest asks “What did you do?” The woman says, “I committed adultery.”<\/p>\n
Priest: “How many times?”<\/p>\n
Woman: “Three times.”<\/p>\n
Priest: “Say two Hail Marys, put five dollars in the box and go and sin no more.” A few minutes later a man enters the confessional. He says, “Father forgive me for I have sinned.”<\/p>\n
Priest: “What did you do?”<\/p>\n
Man: “I committed adultery.”<\/p>\n
Priest:”How many times?”<\/p>\n
Man: “Three times.”<\/p>\n
Priest: “Say two Hail Marys, put five dollars in the box and go and sin no more.”<\/p>\n
The rabbi tells the priest that he thinks he’s got it so the priest leaves.<\/p>\n
A few minutes later another woman enters and says, “Father forgive me for I have sinned.”<\/p>\n
Rabbi:”What did you do?”<\/p>\n
Woman: “I committed adultery.”<\/p>\n
Rabbi: “How many times?”<\/p>\n
Woman: “Once.”<\/p>\n
Rabbi: “Go do it two more times. We have a special this week, three for five dollars.”<\/p>\n
Drunk and speeding<\/strong><\/span>.
\nAn elderly man speeding is stopped by the police around 1 a.m. and is asked where he is going in a hurry at this time of night.<\/p>\nThe man replies,<\/p>\n
“I am going to a lecture about alcohol abuse and the horrible effects it has on the human body”.<\/p>\n
The officer then asks, “Really? Who is giving that lecture at this time of night?”<\/p>\n
The man replies, “My wife.”<\/p>\n
![\"\"](\"..\/wp-content\/uploads\/2010\/08\/HarryNewtonNewShot2.jpg\" "\\"HarryNewtonNewShot\\"")
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\n<\/strong><\/div>\nHarry Newton who wonders why we worry about TSA pat-downs, “don’t ask, don’t tell” and other irrelevancies when we face massive budget deficits, state insolvencies, and heavy unemployment.<\/p>\n","protected":false},"excerpt":{"rendered":"
First Greece bailout, now Ireland. Who next ? Italy, Portugal? When does it end and what kind of precedent is it setting for the future (mainly our states)? That’s the big imponderable. On other other hand, we are entering the usual sweet spot for equity investing. Thanksgiving through New Years is historically a very strong […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-4792","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts\/4792","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=4792"}],"version-history":[{"count":0,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts\/4792\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=4792"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=4792"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=4792"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
![\"\"](\"https:\/\/www.technologyinvestor.com\/wp-content\/uploads\/2010\/11\/ToxiesDead.jpg\" "\\"ToxiesDead\\"")
<\/a><\/p>\n