The globalization of the American economy in recent years has opened up a whole new world of investment opportunities that wise advisors employ to diversify their client’s portfolios.
Whether it is in direct investment in firms from foreign companies or investment in international mutual funds, investors making forays into investment markets outside U.S. borders have myriad choices and require the expertise of knowledgeable advisors to make sure their foreign investment dollars are properly invested.
But amid the turmoil that has sprung from the new presidential administration in investment sectors such as health care (will the Affordable Care Act get repealed?) and energy (is the government going to support alternative sources like wind and solar?), investors must also keep an eye on the relationship between the United States and other countries to determine if their international investments are likely to be affected.
Advisors with expertise in international investments must see this as a significant opportunity to display their knowledge and skills in taking advantage of the opportunities that exist outside of the United States.
According to Spectrem’s study Asset Allocation, Portfolios and Primary Providers, 55 percent of Ultra High Net Worth (UHNW) investors with a net worth between $5 million and $25 million own international or foreign mutual funds. Twenty-eight percent own individual international stocks. Thirteen percent expressed interest in beginning or increasing investment in China and 6 percent in Korea.
Will any of those percentages change as a result of future trade negotiations the Trump administration plans with China, Russia or countries aligned with the North American Free Trade Agreement (NAFTA) or the Trans-Pacific Partnership (TPP)? Will the percentages change because investors want to get out of international investing, or will they change because advisors are advising against international investing?
UHNW investors have their eyes on the relationship between the United States and the two other major global powers, China and Russia. In Spectrem’s study Financial Behaviors and the Investor’s Mindset, 58 percent of UHNW investors express concern over the United States’ relationship with China, and 51 percent express concern over the United States’ relationship with Russia. Such concerns are higher among World War II investors and Millennials than with Baby Boomers.
International relations can also affect American companies, and investors invested in domestic firms must know how political issues involving trade could affect those firms, who themselves have business partnerships outside the United States and are hanging on every political conversation.
It is imperative for advisors to understand how their investor clients feel about international investing, and they also need to know if their investor attitudes towards investing outside the United States has changed due to recent events. With a presidential administration chaffing at the globalization of the world’s economy, with expressed interest in negotiating trade deals with individual countries rather than with regional alliances, how will international investing be affected?
Top Takeaways for Advisors
Educating investors as to how U.S. business relations with the rest of the world impact individual investor portfolios would be a great way to get investors into the office for an examination of the diversification of the investor’s portfolio. An investor who is prepared to take advantage of upcoming changes in the global markets will appreciate his advisor’s efforts to keep him apprised of the opportunities that may be coming up.
On the other hand, knowledgeable investors who understand how politics affects global business are going to be primed to take advantage of opportunities that are popping up as a result of current international events. Be prepared to help those investors make the most of the current geopolitical atmosphere.
©2017 Spectrem Group