In many of my prior articles, I have tried to stress the importance of investors having a global outlook when it comes to the make-up of their portfolios. I have tried to show how the most successful large investors are successful because of their willingness to invest globally.
The sad truth is that the majority of retail investors continue to have blinders on and do not look beyond the borders of the United States. Retail investors behavior is simply not reflective of the current landscape.
Here are some cold hard facts from (2007):
1) The US economy now produces only about 20% of all goods produced globally.
2) The market capitalization (dollar value) of the US stock market is now
less than 30% of the total global stock market capitalization.
3) At year-end of 2007, a listing of all global stock markets and their
performance shows that the US stock market ranked 65th.
As stated in my prior articles, Howe to Invest Like the Pros, and the Harvard Endowment Fund Revisited, major institutional investors have already made the move to investing globally. Harvard invests approximately only a third in US assets and pension giant Calpers has lowered their US allocation to 50%.
Unfortunately, individual investors, who are increasingly more responsible for their own investment decisions, are showing no signs of adjusting to the global trends. According to Hewitt Associates' 401k data for 2007, retail investors were only allocating 14% of their equity portfolios to international investments.
I believe that now is an excellent time for individual investors to either add to positions in foreign markets or establish positions in these markets, including the emerging markets. Right now, Wall Street is selling everything related to foreign markets. Why?
One reason is that these assets are some of the few assets on their books that were actually showing a profit. So many Wall Street firms are selling these assets to help cover some of the massive losses they have incurred in stupid investments like mortgages. A second reason is that the herd on Wall Street believes that if things are bad on Wall Street, they must be bad everywhere.
Wall Street continues to totally ignore the entire emerging markets story. According to the International Money Fund(IMF), the emerging markets now provide 80% of total global growth and 30% of total global economic activity.
These economies are not only growing rapidly but are much less tied to the US economy than they have been historically. Only 15% of Brazil's exports and less than 20% of China's exports go to the US.
Wall Street is currently experiencing one of its periods of irrational behavior which it seems to have every September or October. Wall Street is acting as if these economies were going to suspend all construction immediately, have their massive populations quit eating, and drive their cars into the ocean.
Investors can take advantage of the current insanity on Wall Street most easily by using ETFs and ETNs. There are numerous ETFs and ETNs which fit the bill from well-known names such as Barclays iShares, WisdomTree, PowerShares, VanEck MarketVectors, and State Street Spdr shares.
These ETFs and ETNs give investors easy access to foreign markets and are easily purchased through any online discount broker or other brokerage firms aimed at the small investor such as ShareBuilder or FOLIOfn.