By Jeff Reeves, MarketWatch
Everywhere you look these days, it seems to be bad news for folks who invest overseas.
From the fallout caused by a continuing trade war with China to the continued uncertainty posed by Brexit to ever-present geopolitical risks in the Middle East, the headlines don’t inspire confidence. And besides, with the S&P 500 index /zigman2/quotes/210599714/realtime SPX -1.89% up 14% or so year-to-date, it seems like anyone buying stocks abroad is just looking for trouble.
As with so many things in investing, the truth is much more complicated.
Run the numbers, and you’ll see that a bunch of international investments have outperformed even the S&P’s impressive gains this year. And I’m not talking about single-stock stories, but entire regions of equity investments.
If you’ve missed out on this trend, you’re not alone. The typical U.S. investor has less than 16% of their equity exposure in international stocks, according to Morningstar.
That may be a big problem going forward. The chief investment officer at fund behemoth Vanguard predicted at the end of last year that global stocks would outperform U.S. stocks over the next decade , predicting just a 4% annualized return vs. more than 7% annually for international equity.
Sure, there’s uncertainty abroad. But there’s uncertainty everywhere — and even if you don’t see the dollar signs overseas immediately, there’s a lot to be said for investing with an eye toward diversification.
If you want to add an international flavor to your portfolio but don’t know where to start, consider these highflying regions that prove outperformance exists oversees in 2019.
Yes, China! Just as the U.S. stock market has snapped back dramatically from its December lows, so have many Chinese equity funds.
Consider the SPDR MSCI China A Shares IMI ETF , which is focused on mainland China stocks and not multinationals or Hong Kong-listed enterprises, like other funds. While this ETF has indeed tailed off recently on trade-war uncertainty and its longer-term performance is more challenged, it is still up about 22% year-to-date.
Similarly, the Invesco Golden Dragon China ETF /zigman2/quotes/207362625/composite PGJ -4.56% is up 22% this year. This ETF does bend more toward stocks like Alibaba /zigman2/quotes/201948298/composite BABA -5.95% that are a bit more global and listed offshore, but requires its components derive “a majority of their revenues from the People’s Republic of China.” That makes it a pretty direct play on the region.
Sure, China’s growth is slowing compared with prior years. And sure, nobody knows how the trade war will end. But if you think recent headlines have sent China stocks to new lows, think again.
Want to stay a bit closer to home? Then look north to Canada, a developed market that is having one heck of a year. Thanks to strong commodity prices boosting the nation’s core energy industry along with homegrown cannabis opportunities, Canadian equities are surging.