A Global Barbell with Stocks & Funds

09/04/2018 5:00 am EST


Charles Carlson

Editor, DRIP Investor

If you are wondering what is a reasonable target for international exposure, 10%-20% of a portfolio in foreign stocks remains a decent target level, though I would be reluctant to get too much above that level at this time, explains Chuck Carlson, dividend reinvestment expert and editor of DRIP Investor.  

One approach to investing internationally is to run a “barbell” strategy — focusing on broad, global investment vehicles (such as global mutual funds and ETFs) on one end of the bar, and individual foreign stocks on the other end of the bar.

Mutual funds and ETFs are certainly the easiest way to invest overseas. With one investment you can diversify your funds across many stocks and countries. Two diversified funds are Vanguard International Growth (VWIGX) mutual fund and the Vanguard FTSE Developed Markets (VEA) exchange-traded fund.

For coverage of small and midcap international stocks, consider the iShares MSCI EAFE Small-Cap (SCZ) exchange-traded fund. For emerging markets, the Vanguard FTSE Emerging Markets Index (VWO) is a low-cost way to gain exposure in this segment of international equities.

It is extremely easy for any U.S. investor to buy individual foreign stocks via American Depositary Receipts. ADRs are securities that trade on U.S. exchanges and represent ownership in shares of foreign companies. Investors buy and sell ADRs just as they buy and sell U.S. stocks. 

Despite the higher risks, owning quality foreign stocks makes good investment sense. Over the long term, growth in certain foreign economies should outstrip that of the U.S, and owning that growth should help your portfolio.

Another reason to look abroad is that a number of quality foreign stocks currently offer very competitive dividends and yields. Among the stocks listed here, my favorites include Baidu (BIDU), Fresenius Medical (FMS), Koninklijke Philips (PHG), Novo Nordisk (NVO), Ryanair Holdings (RYAAY), and STMicroelectronics (STM).

Baidu is viewed as the “Google of China.” The company’s sprawling internet operations should help drive growth for the next several years. Another tech play is Switzerland-based STMicroelectronics, which makes semiconductors and sensors used in a variety of industries, including the automotive and aerospace fields.

For exposure to the health-care market, Germany-based Fresenius Medical is a leading provider of dialysis services. Novo Nordisk, based in Denmark, is a leading provider of diabetes treatments. And Netherlands-based Philips is a leading provider of health-care technology products and services.

Ireland-based Ryanair is a lowcost provider of commercial airline services throughout Europe. Though labor strife will impact these shares periodically, I view the stock as an excellent way to play increased travel and mobility in Europe.

All of these stocks score well in my company’s Quadrix stock-rating system. I own Ryanair and Novo Nordisk and would feel comfortable buying them as well as the other four stocks at current prices.

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