In another situation, discussions on the impact of the currency devaluation have identified public companies who can use their reduced cost on a comparative basis to access new business.
Our focus tends to be more on companies that provide not only value to the investor but also add long-term value to the country and region that the company operates in. Following this narrative, as well as, having a more “boots-on-the-ground” approach - either visiting the countries in question or having a strategic contacts/team members in said country - we believe we get a clearer sense of what drives market sentiment and business activity in the countries we invest in.
What other investment opportunities are opening up or gaining steam that you see developing?
Technology usage is growing exponentially. People are having to duplicate their offices at home. They can’t run the business on only a tablet – they often need more bandwidth, multiple screens, robust printers, easy access to courier services, better security (both electronic and physical) and a true dedicated office in the home space (no longer working off the kitchen table). All of these translate to products. Local production of goods will require warehousing and production facilities. Many countries that have relied heavily on imported items are seeing new local manufacturing opportunities.
The increased use of products such as Zoom and Microsoft Teams for collaboration and meetings are opening multinational opportunities for service companies (suppressed only by local licensing requirements) such as engineering, financial services, construction management, HR resources, information technology, educational/training services and marketing. There are also opportunities to take advantage of the cost impact of various currency exchange rates and local labor costs.
Something else that should be taken into consideration is the possible shortening of the international supply chain. The pandemic exposed how fragile the international supply chain is, which could result in geopolitical risk (think China/Australia relations) and an increase in isolationist policies. Opportunities in modern agricultural practices, like hydroponics and vertical farming, as well as oil and gas exploration, should be considered. Another possible opportunity for investors is securities that increase in value as market volatility increases. South African gold mining companies, for example, are in the process of capitalizing on the current higher levels of market volatility by expanding their gold mining operations.
How best can you position yourself as an investor to benefit from the specific pathways that each foreign market is on right now?
Exchange-traded funds focusing on a specific country or region are a practical way to invest in foreign markets. While exchange-traded funds can give a U.S. investor easy access to foreign markets, these usually are broader-based and often offer only larger companies and over-concentration in sectors that may not be the ones to be investing in now. Opportunities at this stage seem more stock selection driven.
To achieve this, the investor can use ADR’s which, while there are a large number, are still fairly limited and often sector-focused like banks. Buying foreign shares is a more difficult issue for most investors, bringing with it income tax compliance issues, foreign currency exchange cost, time zone trading issues and lack of access to some securities. We manage our funds to offer a non-index weighted portfolio in foreign markets. We simplify the U.S. tax compliance in a simple annual form 1099.
Any final advice you would want to share with advisors and investors about why they should be investing and allocating more to these international opportunities?
The U.S. has benefitted disproportionately in recent years as far as investment returns. From a fundamental basis and relative growth opportunity, several international markets and stocks provide unique upside opportunities. There are also currency exchange rate movements that have been a drag on many international stocks performance for some time. The exchange rate movements against the dollar could swing in the investor’s favor, adding to the return potential.
We would advise that investors allocate a limited portion of their portfolio to international equity. Investing in foreign markets should be a deliberate effort that focuses on a particular country, region or possible sector that holds long-term growth potential. That is what our funds are designed to do for you and they offer your clients another layer of diversification for their porfolios.
The Institute for Innovation Development is an educational and business development catalyst for growth-oriented financial advisors and financial services firms determined to lead their businesses in an operating environment of accelerating business and cultural change. We position our members with the necessary ongoing innovation resources and best practices to drive and facilitate their next-generation growth, differentiation and unique community engagement strategies. The institute was launched with the support and foresight of our founding sponsors — Pershing, Voya Financial, Ultimus Fund Solutions, Fidelity, and Charter Financial Publishing (publisher of Financial Advisor magazine). For more information, click here.