Global exposure via large U.S. companies
Joel Dresang: Marc, global growth is picking up in 2017. We’ve talked before about international investing. What about getting global exposure through large U.S. companies?
Marc Amateis: Joel, we talk about how it’s important to invest globally for diversification, but investing globally through U.S. large multinationals is a good way to get indirect exposure to the global markets.
Joel: One research firm put out a report that showed that S&P 500 companies, large U.S. companies, that had over half of their business abroad actually had better revenue and higher earnings in the second quarter than companies that were more focused domestically. What is that telling us?
Marc: Well, one thing it tells us is we have synchronous global growth. All of the major economies in the world are growing now together, and we haven’t had that for a long time.
But the other thing it tells us is that those overseas economies are growing faster than the U.S. economy right now.
As an economy improves, their currency gets stronger, so a lot of these economies’ currencies, these countries’ currencies, are getting stronger against the U.S. dollar, and that’s good for U.S. exporters because it makes their product cheaper to those overseas markets.
Joel: How do investors benefit from investing in a U.S. company to get global exposure?
Marc: Well, a couple things. One would be transparency. We have the rule of law here and outstanding accounting practices that you might not get in other places.
Another one would be stability. Think of a country like Venezuela and what’s going on there right now. If you own a company or if a fund that you have owns a company that’s based in Venezuela, it’s very possible that company could become nationalized, and you just lose that investment.
On the other hand, if you are invested in U.S. multinationals with big footprints overseas, they might have some Venezuelan business, but you’re not going to get killed if something happens over there.
Joel: Should I be getting all of my global exposure indirectly through U.S. companies?
Marc: You could, but you shouldn’t. You want to take advantage of some things that you wouldn’t get that way.
By investing directly in overseas companies, you get different currency translation issues and different tax issues. A good example would be Johnson Controls, which moved its operations from here in Milwaukee to Ireland, and by doing so took advantage of a lower corporate tax structure, and that goes right to the bottom line of the company’s profits.
Joel: So it all gets back to that diversification. I want companies that are involved internationally, but it also helps to have them based around the world.
Marc: Exactly right. The more you can diversify, the more you control risk. And by having not only overseas exposure but also direct exposure to take advantage of positive currency and tax issues, it can really benefit you as an investor. You control risk through diversification.
Investing amid synchronized global growth, a Money Talk Video with Marc Amateis
Over there: Investing in a global economy, a Money Talk Video with Kyle Tetting
Emerging markets: Potentials vs. risks, a Money Talk Video with Steve Giles
International investing includes risks, a Money Talk Video with Brian Kilb
The dollar’s mark on international funds, a Money Talk Video with Marc Amateis
Investment insights via Morningstar Snapshot, a Money Talk Video with Tom Pappenfus
Shopping for Foreign Stocks? Here Are a Few Things to Keep in Mind, by the Financial Industry Regulatory Authority
Economic SnapChart: Strong Dollar, by Paige Radke
International Investing, from the Securities and Exchange Commission
(initially posted Sept. 12, 2017)