I’m not concerned about the US economy and I don’t believe a recession is imminent. US stock returns track economic growth over the long term. But over shorter periods, stock returns and growth can diverge, cautions Bob Carlson, editor Retirement Watch.

In recent years, US stocks had appreciated at a faster rate than either the economy or profits have increased. The opposite is likely to happen in the future.

Most of the stock market gains the last four years have been from valuation increases, also known as multiple expansions. The factors justifying higher multiples are fading.

Based on this outlook, we are increasing our positions in WCM Focused International Growth (WCMRX). This fund has been in our portfolios since June.

Few investors know about the mutual fund, but it is well known to pension funds, endowments and other institutional investors for which it has delivered strong returns for years.

There are attractive stock opportunities outside of the United States. This fund is a way to capture those opportunities.

This also is a focused fund that invests in relatively few stocks. Fund management has strict investment criteria that few companies meet. It looks for what it calls great companies, which are growing and expected to grow for a long time.

The fund’s management wants to buy stocks at reasonable prices and hold them for years. The fund’s first step is to find companies that have earned high returns on their invested capital and that carry low or no debt.

Then, it analyzes those companies to determine which ones are likely to continue their past performance.

The fund has identified several long-term global trends its management views as tailwinds for growth, and it favors companies that benefit from one or more of those trends.

The trends include changing demographics, increased outsourcing, the growing global middle class and the proliferation of technology.

Fund management also prefers companies that have some protection from competition, which can include economies of scale, legal or regulatory protection and prohibitively high costs for customers to change suppliers, among others.

These factors lead the fund primarily to companies in the technology, consumer discretionary, consumer staples and health care sectors.

As I said, the fund scours the globe for companies that meet its criteria. Recently, the fund was 52% invested in Europe, 20% in the Americas and about 27% in Asia. About 7.5% of the fund is in Japan-based companies.

Because of the fund’s emphasis on great companies and global diversification, it should do better than the indexes during downturns and provide us with returns independent of the strength of any country’s markets or economy.

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By Bob Carlson, Editor Retirement Watch.