The Case for Constructing Global Investment Portfolios

1
The Case for Constructing Global Investment
Portfolios

• Ignoring foreign markets can substantially reduce
  the investment choices for U.S. investors
• The rates of return on non-U.S. securities often
  have substantially exceeded those for U.S.-only
  securities
• The low correlation between U.S. stock markets
  and many foreign markets can help to
  substantially reduce portfolio risk

2
Relative Size of U.S. Financial Markets

• The share of the U.S. in world capital markets
  has dropped from about 65 percent of the total in
  1969 to about 48 percent in 2000
• The growing importance of foreign securities in
  world capital markets is likely to continue

3
Global Investment Choices

• Fixed-income investments
• bonds and preferred stocks
• Equity investments
• Special equity instruments
• warrants and options
• Futures contracts
• Investment companies
• Real assets

4
International Bond Investing

• Investors should be aware that there is a very
  substantial fixed income market outside the
  United States that offers additional opportunity
  for diversification

5
International Bond Investing

• Bond identification characteristics
• Country of origin
• Location of primary trading market
• Home country of the major buyers
• Currency of the security denomination
• Eurobond
• An international bond denominated in a currency
  not native to the country where it is issued

6
International Bond Investing

• Yankee bonds
• Sold in the United States and denominated is U.S.
  dollars, but issued by foreign corporations or
  governments
• Eliminates exchange risk to U.S. investors
• International domestic bonds
• Sold by issuer within its own country in that
  countrys currency

7
Acquiring Foreign Equities

• 1. Purchase of American Depository Receipts
  (ADRs)
• 2. Purchase of American shares
• 3. Direct purchase of foreign shares listed on a
  U.S. or foreign stock exchange
• 4. Purchase of international mutual funds