It’s Not Where You Invest but How

Diversification comes in many forms.



Title: It’s Not Where You Invest but How


Abstract: Diversification comes in many forms. You may not want to get too caught up in geographical diversification but instead investors may want to focus on other diversifiers when building portfolios.



Money is moving from the US abroad, but is that the right kind of diversification for investors?


Swanson: Look beyond geographical diversification when building portfolios.


LinkedIn: Moving money abroad may not bring as much diversification as you think.


Facebook: Our James Swanson says stocks are pretty expensive globally. You can't get away from expensive financial assets by just pivoting away from the United States.



The financial press has been filled with stories recently about money leaving the US equity markets and going abroad and by that I mean going to Europe, going to Japan, going to the emerging market countries. Why is this happening and should investors get excited about this idea? Maybe we should move our money outside the US. It's an interesting idea but let's examine it. Why is it happening? Two reason, valuation and fundamentals. Valuation, let's take a look at price to earnings ratios. We can measure these across the world. Yes, these other areas across the world look cheaper than the US. But how do they look compared to their own long term history? Expensive. You can't get away from expensive financial assets by just pivoting away from the United States. That's number one.


Fundamentals, number two. We are seeing better manufacturing results in Europe and in Japan and in the emerging market countries and we're seeing better consumer demand. Let's take a look a little bit deeply down the road. China is starting to slow down and we're seeing metals prices start to fall. Could this be a sign of a slowdown later this year? The consumer in China, the consumer in the United Kingdom, the consumer in Germany and in the US are experiencing something we haven't seen in many years and that's slow growth in wages but a pick up suddenly in the cost of living. This can tend to restrain consumer spending and the developed world depends on consumer spending. There could be a bit of a slowdown ahead because of this.


Let's examine the whole idea of going to a basket of equities let's say in Europe or in Japan. These are listed in those areas but they may be doing business somewhere else. Let's just take the S&P 500, 40% of the revenues, the S&P 500 are coming from outside US borders. There is diversification within all of these indices, I'd rather think about portfolio management as looking at diversity in a different way like we look adversity of people in organizations that can help those organizations. Think about diversity in these terms, having a collection of companies that might include disruptors rather than companies that will be disrupted. Technological leaders like first advantage or first movers in a technology field rather than the laggards.


Let's think about companies with secure supply chains across the globe and diverse supply chains. Let's think about companies with strong managements, strong sales and strong product development and reinvest in their own businesses rather than just buying back shares or increasing the dividend rate. Reinvestment in your own company is an important thing. These are diversification elements that I think should replace the idea of just geographical diversification. This is Jim Swanson saying thank you for your time.



Diversification does not guarantee a profit or protect against a loss.


The investments you choose should correspond to your financial needs, goals, and risk tolerance. For assistance in determining your financial situation, consult an investment professional.


The views expressed are those of James Swanson and are subject to change at any time. These views are for informational purposes only and should not be relied upon as a recommendation to purchase any security or as a solicitation or investment advice from the Advisor.



Disclosure graphic:

close video

This website uses cookies to operate the site, for site analytics, and for advertising. Please see our Cookies Policy for details and instructions on how you may disable or opt out of cookies. By continuing to use this website you agree to the use of cookies on this site unless you have disabled them.