Advisors have a strong stake in international investing for their clients, according to a survey by Northern Trust’s ETF business, FlexShares, released exclusively to Financial Advisor on Monday.
The vast majority of advisors, about 93 percent, plan to increase their clients’ international holdings in 2018 or keep the holdings the same, according to the survey, which Financial Advisor helped to formulate.
The interest in international investing is present despite the strong domestic market and the risks of global political tension, according to the 250 advisors who participated in the survey.
Geopolitical uncertainty is the top concern for advisors when investing abroad, with 63 percent of advisors listing it as a consideration. Mutual funds were the preferred method of gaining international exposure, closely followed by ETFs. Advisors preference for these funds significantly outweighed their interest in individual securities. About 90 percent of advisors have some international fund exposure.
A majority of advisors (59 percent) invest between 10 percent and 25 percent of their clients’ portfolios internationally. Only 4 percent invest more than half of their portfolios internationally.
When evaluating international funds, advisors turn first to Morningstar, which is used by 72 percent of respondents, according to the survey.
The increasing focus on international funds can be attributed to a number of factors, according to Chris Huemmer, senior investment strategist at Northern Trust’s FlexShares.
“U.S. investors have been underweight in international exposure, particularly in emerging markets, for some time,” Huemmer said. ”In addition, going into this year, investors saw the United States as being the sole engine of growth, but we have seen that growth spread globally, which signaled investors to not focus solely on domestic investments.”
International, and particularly emerging market, valuations are more attractive, he said. “Even though the U.S. market is up 20 percent, emerging markets are up 30.9 percent and further global growth should help these markets,” Huemmer said.
In addition, European and Japanese banks are still buying bonds and have not indicated they will increase interest rates, unlike the Federal Reserve, which is reducing its balance sheet and probably raising interest rates, Huemmer said.