A survey released Tuesday found that enthusiasm for global markets was growing, with half of the 13,000 respondents to the Franklin Templeton Global Investor Sentiment Survey across 12 countries planning to invest outside their home country in 2011. Dovetailing with this growing interest is the latest news to come out of Vanguard, Dreyfus Corp. and Russell Investments, which shows all three firms launching new products on the international markets.
On Monday, Vanguard filed a registration statement with the Securities and Exchange Commission for an actively managed emerging markets equity fund that will complement the firm’s existing emerging markets index fund. That same day, Dreyfus launched the Dreyfus Total Emerging Markets Fund, an actively managed mutual fund that seeks to create a portfolio comprised of emerging markets equities, bonds and currencies.
Also on Monday, Russell, owner of global equity indexes with $3.9 trillion in assets benchmarked to them, and Chi-X Europe, the leading pan-European equities exchange, announced the creation of an alliance to launch a new series of European indices. This follows Russell’s March 17 announcement of its launch of the Russell Global 3000 series of 18 indexes, which are sub-components of the Russell Global Index.
But while the new product launches reflect American appetite for investing globally, they come with a warning: buyer beware.
In Vanguard’s news release for its emerging markets equity fund, to be managed by four advisors each overseeing 25% of its assets, CEO Bill McNabb (left) explained that the Vanguard Emerging Markets Select Stock Fund will offer a relatively low-cost, diversified option for investors who prefer an actively managed approach to the emerging segment of the global market.
“The new fund also provides investors with access to the best thinking of four highly regarded firms that have expertise in navigating this part of the investment world,” McNabb said in reference to advisors M&G Investment, Oaktree Capital, Pzena and Wellington.
But in a caution to investors, Vanguard in the news release warned against chasing performance given the strong absolute and relative investment returns of the emerging markets in 2010 and “subsequent torrent of cash flow” to emerging market funds.
“Emerging markets can be an important part of an overall investment portfolio, but we suggest that investors use market capitalization as a yardstick for the appropriate amount of an investment,” said Joseph H. Davis (left), Ph.D., Vanguard's chief economist and a principal in Vanguard Investment Strategy Group. “Today, emerging markets make up 25% of the international stock market, so we recommend that emerging markets represent no more than 25% of an investor’s international equity holdings.”
In a recent article posted on Vanguard.com, “Practice portion control with emerging markets” the investment management firm encouraged investors to revisit their exposure to emerging markets and to question their reasons for holding the segment.
Mutual fund authority Boz Pozen told AdvisorOne on March 11 that Americans should consider investing in international funds twice as much as they do now.
During an interview promoting his new book, The Fund Industry: How Your Money Is Managed, co-written with Theresa Hamacher, Pozen said most Americans are under-invested internationally, and should put as much as half of their 401(k) money into global securities.
“From a diversification point of view, half of the world’s market assets are outside of the United States, but it’s the rare U.S. individual who has half of his or her portfolio outside,” said Pozen, who is chairman emeritus of MFS Investment Management and a former vice chairman of Fidelity Investments.
“When you think about it, your job is here, your house is here," said Pozen. "If you put half of your 401(k) internationally, you would actually have about 25% or 30% of your assets internationally. We’re not saying you should be at half, but the average retail investor has something like 10% or 15% invested internationally. In our view, that’s much too low.”
Exactly how much should be invested internationally depends on an investor’s appetite for risk, Pozen added. His new book’s final section, “The Internationalization of Mutual Funds,” notes that U.S. investors have been increasingly willing to venture outside their home market “mainly because the potential rewards have been very attractive, especially in the developing world.”