Don’t Let Home Country Bias Limit Your Investment Potential

It’s easy for investors to fall into what is known as “home country bias,” looking only within their own country’s borders for opportunities. That isn’t the case with Franklin Equity Group Portfolio Manager Don Huber—who is always searching the globe for quality growth opportunities. He says investors may be missing the boat if they don’t expand their opportunity set beyond their shores.

Why International Equities? Four Reasons

I think there are a few things beginning to align that could lead international equities to outperform US equities.

One is that that we just passed the one-year anniversary of President Trump’s US stimulus package, which included tax cuts and some deregulation. The impact of that stimulus is now wearing off.

Second, trade negotiations between the United States and China remain uncertain, which could conceivably affect US-Europe trade relations, too. While US equities enjoyed a strong first-quarter performance, trade-related setbacks have certainly had a negative impact on sentiment for US equities at various points over the last year or so—and could again.

And third, international equities are generally less expensive than US equities. I think that valuation disparity is likely to be in many investors’ minds (or perhaps should be) as they’re making asset allocation decisions going forward.

Lastly, the strength of the US dollar has been a headwind for US investors investing offshore over the last few years. Rising interest rates typically support a strong dollar, and we saw the US Federal Reserve (Fed) tighten rates nine times from 2015-2018.

However, this year the Fed has indicated it will pause, so we may see that headwind either abate or become a tailwind for US investors’ returns from markets outside the United States.