The Four Things You Need to Know to Invest Globally
09/07/2007 12:00 am EST
Jeffrey Everett, chief investment officer–retail, of the Templeton Global Equity Group told investors that global investing success transpires from learning how to leverage their own experiences for profit. That means looking at the world from a different point of view than that held by other investors. His practical advice: buy unloved, undervalued companies, then wait patiently and buy when others are despondent and selling. The key is to understand human emotions, and you will become a better investor.
That entails never following the crowd; using your personal experiences to be creative; think independently; and look where no one else is looking.
And today, he sees the best opportunities in the global arena, garnered through a thorough analysis of the four basic fundamentals to buying international investments:
- Earnings growth
- Dividend yield
Dissecting them one by one, Mr. Everett compared earnings growth domestically, as represented by the S&P 500, to international earnings growth, using the MSCI All Country World Index ex-USA Growth Index. Over the past five years, the S&P 500 grew 26%, while the international index rose by 77%. Consensus estimates for next year are 16% for the S&P 500. Analyzing some of the components of the global index indicate that forecasts call for 21% growth in Asia-Pacific and 30% in Latin America, alone.
For the last quarter of a century, dividend reinvestment in the US accounted toward one-half of the S&P 500’s total return, due to compounding. Today, dividend yields domestically are 1.8%; while the MSCI Index is posting 2.7%; Brazil, 2.8%; Thailand, 3.4%; and Taiwan, 3.8%.
Next, Mr. Everett explained that valuation is critical to future profits and ensures a margin of safety to investors. Right now, the MSCI Index is statistically cheap, trading at some 14x earnings, while the S&P 500 trades around 18x.
Addressing the risk factor, Mr. Everett noted that over the last decade, foreign markets have been considerably less volatile than those of the US. And in fact, just this last year, they were 40% less volatile.Mr. Everett advised investors to consider large-cap stocks right now, but cautioned that stocks around the globe–not just in the US–should be at the top of your list.