“There is yawning gap between U.S. and international valuations and margins,” said David Nadel, a portfolio manager with Royce & Associates. “I think the latter point is often less appreciate than the former one.”
Nadel emphasized the operating margins for U.S companies are now pricy compared with international ones. “They are in the stratosphere,” he said.
Still, panelists noted that many investors still have a “U.S. bias,” and most of them have allocated very to international companies. Nadel said international investing remains “an underinvested asset class,” even though it has performed very well over the long term. Nadel added that he has allocated a “huge” portion of his own investments to this asset class.
However, panelists conceded that emerging market and international investing in general have spooked many American investors. For example, emerging market only represents about 5 percent of the average investor’s portfolio.
“It is an area that has been missed by a number of people,” Mathewson says.
The problem is for years emerging markets were dominated by resource companies, Mathewson said. But today the market has broadened so that many consumer and technology companies are a bigger part of the sector, which is changing the nature of the investment and its potential profitability.
But overseas investments could still blow up, some advisors fear. So what are the biggest threats to this international equities turnaround?
Nadel said that a strong dollar could be a problem. And all panelists agreed that the uncertainty over a potential trade war could also make investors fearful about spending money abroad.