Derek Tharp’s clients at Mote Wealth Management might be in for a surprise at first, when they learn that more than half their portfolios are devoted to international diversification. That’s because at Mote Wealth, global market cap is a determining factor in assembling a portfolio, and according to Tharp, the U.S. is not the dominant market cap.
“Many clients are initially surprised by this amount of international diversification, but once they understand the approach they are very open to the strategy,” Tharp said. “We also use an excellent graphic that maps out the world’s economies based on market capitalization, which is very helpful in comparing how large various equity markets are.”
Such diversification has always been a part of the portfolios at Mote Wealth, Tharp said, “to make sure that we were trying to maximize the returns while minimizing the risk. That meant finding investments all around the world, to spread out the risk and not be too concentrated in one area.”
Currently the U.S. not only does not dominate, but it makes up only about 48.5% of the global market cap; as a result, that’s its position in client portfolios as well. The firm doesn’t favor or seek out individual regions, either, Tharp said, because the strategy is passive. Therefore, the U.K., for instance, makes up approximately 7% of the weighting, with emerging markets accounting for about 13% and providing exposure to such countries as China, India, and Brazil.
“If a place like Australia takes off, we want to be there to capture that,” Tharp said. “When you look at places a little more poised for growth, like emerging markets, [you want to be there too]. We do stay away from frontier markets, because they’re such a small portion of the global market cap and because we don’t feel there’s a cost-effective way to reach them.” The firm uses mutual funds and bond funds, both U.S. and international, but “nothing outside of that,” he said.