Leslie Beck of Beck Investment Management, LLC, can pinpoint what started her on the path to international investing. It was Sir John Templeton, whose writings and talks on the subject convinced her back at the beginning of the 1980s that it was a wise action to take.
His position, said Beck, was the need for “diversification, but his argument was, ‘How do you ignore the rest of the world?’” And Beck has taken his advice to heart, from the time she was a stockbroker in the 1980s—even though it could be a challenge at the time to broaden client portfolios outside the borders of the U.S.
“At that time, it was an uphill battle to get any international investing,” said Beck. While Templeton funds with international exposure were available, and she used them, it was difficult to go beyond that without an outside manager. The feeling in a lot of trust companies was “‘If we can’t manage it ourselves and can’t buy individual bonds, stocks and currency, we wouldn’t hire outside managers to do that.’ The only way we could do international investing was with ADRs and dollar hedging, and obviously no international bonds,” she said.
Although Beck did invest internationally, she “did not have anything in emerging markets unless it was in a Templeton fund at that time, just because [emerging market stocks] were so thinly traded. Not that they aren’t now, but you had to get an appointment to get a time to trade.”
Now, instead of having to set up appointments in different time zones, or being confined by the need to find outside managers who can navigate international waters, Beck uses mutual funds and ETFs, as well as international mutual real estate funds, “which rebounded well after horrible lows in 2008/2009.” These days she relies primarily on PIMCO for mutual funds; she also uses international developed and emerging market bond mutual funds.
Templeton, she pointed out, had called accurately when to more heavily invest in international than U.S.—70% in the former and 30% in the latter—during the 1980s. In 1991-1992, she recalled, he’d suggested the reverse, and in 2000 advocated a market-neutral stance in portfolios. “He had a growth bias,” she said, which led him to make a strong case for international when he felt the environment warranted.
While Beck was heavily into emerging markets when they were doing well, now she’s looking elsewhere for good performers. “There were just so many emerging [market] countries that were concerned: Russia and eastern Europe, Brazil, Argentina. I didn’t know if they could get out of the holes that they’ve dug. And China? Who knows what China’s doing?” The potential for a slowdown in China not only to drag down its economy but to hurt other countries dependent on its vast output has given her pause. But Europe may have hit bottom, and she’s hoping for some good returns there.
“Europe has gone through so much angst; they’ve had higher taxes, and a much more stringent fiscal policy than we have, and they’ve gotten through most of their pain. I think they can grow out of it. I don’t want all my eggs in the U.S. basket, with all the debt levels we’re taking on,” she said.
Beck’s a “big believer in having as big a basket as you can. Diversification has to come, not just from how many positions you have, but how many countries.” Still, at present, she said she wouldn’t buy a Russia ETF. Currently she uses the Vanguard Total World ETF, because in addition to having a broad exposure to countries, it also provides “small and mid-sized companies and some emerging market exposure. It’s a good, safe, easy investment to do for a lot of clients, and a lot of individuals who would be investing on their own would be comfortable [with it as well].”
Right now, Beck said that of the current 50% international exposure in her clients’ portfolios, it’s “broken down between developed and emerging markets, as well as mid-cap and small-cap company ETFs, and the same on the domestic side.” Right now, she said, she’s “allowed that 50%/50% to become 65% U.S./35% international.” But she’s going to rebalance back to 50/50.
All that said, except for rebalancing, Beck doesn’t trade in client portfolios, and said that some of the funds she’s bought on their behalf will remain in their accounts “for 10–12 years. When I average into the next position, I will be looking at the next long-term trend.”