A world of international opportunities awaits

Accessing international equities opens up opportunities to diversify portfolios, exploit global trends, and uncover attractively valued stocks benefitting from strong structural forces.

Mar 17, 2021

16 minutes

Ian Vose
Adam Child
Accessing international equities opens up opportunities to diversify portfolios, exploit global trends, and uncover attractively valued stocks benefitting from strong structural forces.

The fast view

  • After a prolonged period of US outperformance, investors in the US find themselves, on average, underweight international equities.
  • This means a world of international opportunities awaits for investors to uncover alpha.
  • We consider the less efficient and under-owned markets outside the US and describe a number of structural forces from which international investors can benefit:
    • policy initiatives driving progress towards carbon neutrality
    • electrification tailwinds from the energy transition
    • the shifting center of gravity for semiconductor manufacturing from West to East
    • rising household incomes in Asia and EM driving demand for higher value consumer goods
  • Through focused bottom-up research, an active approach, such as the 4Factor investment process, can uncover compelling stock ideas across sectors and geographies to capture alpha and diversification.

Why take a core active approach?

The US has outperformed over recent years, but taking a longer-term perspective, this has not always been the case. Moreover, the size effect coupled with the different sector composition of the US and overseas markets mean that index performance masks a different story at the stock level and the international universe has abundant opportunities for active investors.

Active strategies can target attractively valued growth opportunities, as well as exploit trends which are unavailable or less compelling in the US domestic market. European and Asian companies are often at the forefront of new technologies in renewable energy, as well as in the move towards electrification. They have also stolen a march on US competitors in the semiconductor industry. In addition, wealthier consumers in Asia and emerging markets upgrading their purchases offers profit opportunities for international companies, as well as their investors.

In this paper, we discuss some of the secular trends that we believe are attractive and where international companies stand out.

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More about the strategy

Specific risks

Currency exchange: Changes in the relative values of different currencies may adversely affect the value of investments and any related income. Derivatives: The use of derivatives is not intended to increase the overall level of risk. However, the use of derivatives may still lead to large changes in value and includes the potential for large financial loss. A counterparty to a derivative transaction may fail to meet its obligations which may also lead to a financial loss. Equity investment: The value of equities (e.g. shares) and equity-related investments may vary according to company profits and future prospects as well as more general market factors. In the event of a company default (e.g. insolvency), the owners of their equity rank last in terms of any financial payment from that company. Emerging market (inc. China): These markets carry a higher risk of financial loss than more developed markets as they may have less developed legal, political, economic or other systems.

General risks

All investments carry the risk of capital loss. The value of investments, and any income generated from them, can fall as well as rise and will be affected by changes in interest rates, currency fluctuations, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets in which the investment strategy invests. If any currency differs from the investor’s home currency, returns may increase or decrease as a result of currency fluctuations. Past performance is not a reliable indicator of future results.

Ian Vose
Portfolio Manager
Adam Child
Assistant Portfolio Manager

Important Information

This communication is provided for general information only should not be construed as advice.

All the information in is believed to be reliable but may be inaccurate or incomplete. The views are those of the contributor at the time of publication and do not necessary reflect those of Ninety One.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

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