An advisor who invests in international financial markets faces the same set of considerations as a multinational company that does business in other countries. That means, opportunities aside, that what matters above all else are transparency and the rule of law, said Larry Elkin, founder and president of Palisades Hudson Financial Group.
“As an investor, I should be able to walk into any court anywhere in the world with my counterparty and expect fair treatment,” Elkin said. “I don’t have to agree with everything a country says, but I do I need to trust their systems to treat me fairly.”
Elkin applies this one overriding principle to all of his international investments and to every mutual fund he selects for his clients. “We look at very closely at the geographic distribution of the mutual funds we use for our clients and we really drill through them,” Elkin said. “If a fund happens to be heavy in a jurisdiction we think is unreliable or unstable, then we will not invest in it. We might accept a 2% incidental exposure to a country we’re not comfortable with, but not, for example, 15%, because that isn’t incidental; that’s just ignoring what’s really going on in a particular jurisdiction.”
Russia and China are two countries that just don’t make the grade, as far as Elkin is concerned, and to the extent that a fund has significant exposure to Russia, it won’t be chosen for investment.
Of course, it’s hard these days to find any investments that aren’t in some way linked to big countries such as China, given the magnitude of the Chinese economy. Just about any company in the world has some sort of China connection, but Elkin avoids too much of an exposure by staying away from those stocks that are listed on Chinese exchanges, for instance (not that it’s easy to get those stocks anyway), and keeping his China exposure to a minimum.