How to Invest for Global Exposure

What is global investing?

Global investing can be a good strategy for investors who want to reduce their risk and open themselves up to new opportunities. Investors well know the international household names in technology, energy, and finance—like Samsung in South Korea, Mitsubishi in Japan, ING in the Netherlands, and Allianz in Germany. But many investors don’t know that they can also explore the world’s emerging and developing markets to get exposure to different regions.

U.S. investors tend to stay close to home, prioritizing domestic stocks and funds. But non-U.S. markets—from Europe to Southeast Asia to South America to Africa—comprise 57 percent of global investment opportunities, which means that close to half of those opportunities exist beyond U.S. borders (1).

And these opportunities are growing fast. Emerging and developing markets are on track to be the largest contributors to global GDP by 2042. By 2050, they will account for almost 60 percent of the world economy (2). Despite the pandemic and climate crises rattling the global markets, investors are leaning into these potentially lucrative investments. Global assets under management are predicted to reach $145.4 trillion by 2025, almost double the $84.9 trillion that was under management in 2016 (3).

Global investing versus international investing

Investors do need to keep in mind that global funds and international funds are distinct, with different rules, goals, and opportunities.

Global funds are comprised of securities from around the world, including the investor’s home country. Global funds give investors the chance to diversify (4) and reduce country-specific risk while still including their own country in their investment portfolio. International funds, on the other hand, contain securities from around the world with the exception of the investor’s home country. These funds are a way for investors who already have a robust domestic portfolio to diversify outside that sphere.

Investing globally with stocks and ETFs (5)

Some investors invest directly in the stocks or bonds of foreign entities. However, there are many complex factors involved in these transactions, such as tariffs and trade barriers.

U.S. investors usually find it more convenient to own American Depository Receipts (ADRs) instead of the share of foreign stock itself. U.S. depositary banks issue ADRs that attest to a right to ownership of a share or fraction of stock of a foreign company that trades in U.S. markets. Alternatively, depositary banks in an international market, usually in Europe, issue Global Depository Receipts (GDRs) that attest to ownership of shares in a non-U.S. company. GDRs are available to institutional investors in and outside the U.S.

Exchange-Traded Funds (ETFs) group many different stocks or bonds — sometimes thousands — into a single fund that is traded on the stock exchange like an individual stock. These funds can focus on global stocks and sometimes have a regional focus. Individual investors are not allowed to buy mutual funds that are based outside their home country, so investors should buy a fund based in their own country that includes global investments.

Why invest globally?

Investing globally is an effective way for U.S. investors to reduce risk in a portfolio—and also opens up the door to investing in opportunities that don’t exist in the U.S. Global investing allows investors to diversify investments and mitigate risk. A globally diversified portfolio protects investors against serious losses when stocks in one country suffer setbacks that aren’t felt elsewhere. For example, when the S&P is underperforming, often international stocks perform better (6). Between 1971 and 2021, whenever U.S. returns were lagging at under 4 percent, the international market outperformed the U.S. market fully 100 percent of the time (7).

Investors could also miss out on some phenomenal investment options by not investing globally. There are exciting emerging sectors unfolding in business around the world, from semiconductors in Europe and fintech in South America to finance in Southeast Asia.

Ultimately, “going global” makes good financial sense, especially for investors with their sights set on diversification.

How to invest globally

Investors can add global investments to their portfolios by buying stocks or exchange-traded funds (ETFs). On Magnifi, you can search for global investments and look for regions and sectors you’re also interested in:

• Invest in global funds
• Invest in EV including global
• Invest in robotics in South Korea

References:

1. “Investing globally can help your money grow,” accessed December 12, 2022, Putnam Investments, https://www.putnam.com/literature/pdf/II831-cc5480b8f4af558a0114a651fe32557e.pdf.
2. Orlink, Tom, and Bjorn Van Roye, “An Economist’s Guide to the World in 2050,” November 12, 2020, Bloomberg, https://www.bloomberg.com/graphics/2020-global-economic-forecast-2050/.
3. “Global Assets under Management set to rise to $145.4 trillion by 2025,” accessed December 12, 2022, PwC, https://www.pwc.com/ng/en/press-room/global-assets-under-management-set-to-rise.html.
4. Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.
5. Mutual Funds and Exchange Traded Funds (ETF’s) are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from the Fund Company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.
6. Nelson, Eric D., “Should You Still Own International Stocks?,” March 26, 2021, Servo Wealth Management, https://www.servowealth.com/blog/should-you-still-own-international-stocks.
7. Hansen, Sarah, “Why You Should Own International Stocks, Even Though They’re Lagging the U.S. Market,” October 27, 2022, Money.com, https://money.com/why-you-should-own-international-stocks/.