Given the potential risks, choosing where to invest globally can be difficult, writes, Nicolas Johnson, of The Globe and Mail, who offers seven to consider for the coming year.
Many investment advisors suggest diversifying globally, but with potential risks for Canadians looking abroad, the choice can be a tough one. Here are seven stock and fund picks by asset managers and analysts for 2014.
There are a couple of reasons money managers often advise Canadian investors to overcome their home-country bias and to put part of their assets abroad. One goal is to get a chance at higher returns by investing in expanding businesses or industries that are absent from our own stock exchanges. Canada's stock market represents only about 3.4% of the world's $62-trillion (US) in publicly traded companies. A second goal is to diversify wealth and reduce the vulnerability of one's portfolio to a collapse in the Canadian market.
Whether buying securities at home or abroad, investors need to do their homework beforehand, analyzing how a potential trade fits their overall strategy. Taxation is generally more favorable for domestic investments than foreign ones, and investing overseas adds currency-exchange risk. Plus, there's the chance that Canadian investments will soar, while overseas prices sink.
Here are seven international investment ideas that differ in their rationale, profile, valuation, potential return, and risk.
Visa (V) and MasterCard (MA) are among the products that most of us carry in our wallets. Mark Lin, who helps oversee about $1-billion in stocks worldwide at CIBC Global Asset Management (CN:CIBCGTEC) in Montreal, also has them as the top holdings in his technology fund.
The world's two largest electronic-payment networks will continue to benefit from several global trends, Mr. Lin says. They take a cut of every transaction in which they are used; there's a shift away from cash, and toward cards and electronic payment, especially in emerging countries; people are increasingly shopping over the Internet; and it's difficult to set up a rival payment network.
“You basically own part of everybody's future spending,” Mr. Lin says. “That's really what you're buying into. More and more monetary transactions will go over the electronic system.”
Visa shares have risen about 10% since Dow Jones & Co. said, on September 10, that it will add the company to the flagship Dow Jones Industrial Average. On the other hand, that has pushed the stock price to 26 times earnings for Visa, and MasterCard has a price-earnings ratio of 30, making them expensive. For these investments to make sense, “the price has to be right,” Mr. Lin says.
Another stock Mr. Lin likes is Luxottica Group SPA (LUX), which owns or has licenses to sunglass and eyeglass brands, including Ray-Ban, Oakley, Prada, and Dolce & Gabbana. The company, which trades in New York and Milan, also operates the LensCrafters and Sunglass Hut retail stores, among others.
“It's a unique story, in that, they not only make the product, they also control distribution,” Mr. Lin says. “If you want a high-end pair of sunglasses or prescription glasses, there's really no escape.”