One of the main reasons is you could be missing access to growth potential
The strong performance of U.S. stocks in recent years has engendered some skepticism among U.S. investors when it comes to international investing. Nonetheless it is important to remember international investing can offer two important benefits: diversification and access to growth potential.
Historically, U.S. and international stocks have gone through periods when one region outperforms the other. That was the case during high volatility in December 2018, when emerging markets outperformed the U.S., and it underscored the importance of having some exposure to stocks outside the U.S. Combining assets that don’t move in lockstep may help reduce volatility in your portfolio over the long run.
Access to growth
International economies – particularly emerging countries – can offer faster rates of economic growth than the U.S.1 For example, in emerging markets, a growing middle class and developing infrastructure may help generate wealth and dynamic companies with significant growth potential. And developed countries are already home to many world-class companies that U.S.-only investors could be missing in their portfolios.
Get to know “core/satellite” strategies
Investing in international stocks brings risk, including currency exposures and geopolitical risks. A way to help manage this risk is with a “core/satellite” strategy. For example, an investor could hold some broad exposure (core) to an asset class through an international fund, while enabling the flexibility to adjust to current market conditions with country-level investments (satellite).
Approaches to “core/satellite” strategies include:
- Managing strategic core exposures
- Managing currency exposures
- Implementing macro themes
- Managing political event risk
For many investors, a broad, index exposure for non-U.S. regions may be appropriate, but it can come with drawbacks – specifically a large allocation to a few large countries may increase risk. But investors have a range of ways to invest internationally and tailor their approaches to pursue their goals with their own tolerance for risk in mind. In this effort, country ETFs can be a powerful tool. Country funds might require more diligent monitoring, but the precision exposure offered by them enables tremendous flexibility in the range of applications and level of sophistication.
1 IMF World Economic Outlook, January 2019
Carefully consider the iShares Funds’ investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds’ prospectuses or, if available, the summary prospectuses which may be obtained by visiting www.iShares.com or www.blackrock.com. Read the prospectus carefully before investing.
Investing involves risk, including possible loss of principal.
International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. These risks often are heightened for investments in emerging/developing markets and in concentrations of single countries.
Diversification and asset allocation may not protect against market risk or loss of principal. The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective. The information presented does not take into consideration commissions, tax implications, or other transactions costs, which may significantly affect the economic consequences of a given strategy or investment decision.
This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date indicated and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and non-proprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any of these views will come to pass. Reliance upon information in this post is at the sole discretion of the reader.
The iShares Funds are distributed by BlackRock Investments, LLC (together with its affiliates, “BlackRock”).
©2019 BlackRock. iSHARES and BLACKROCK are registered trademarks of BlackRock. All other marks are the property of their respective owners.