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May 27, 2014 at 09:20 PM
Investing internationally wasn’t easy when John Kvale of J.K. Financial Inc. began to incorporate such instruments into client portfolios “at least 15 years ago.”
“There weren’t a lot of choices, and you really had to work [at it],” he said, except for “a few old stalwarts in the industry–Mobius, Templeton.”
But it was worth it, Kvale said, perhaps even more then than now, when markets were far less linked and what affected one didn’t necessarily affect all.
“Diversification internationally probably helped more 15 years ago than today, because markets are more correlated,” he said.
Still, Kvale said, “We feel strongly that international investments are the core of every client portfolio. We constantly preach diversification and international investments are at the core of diversification.”
New clients, however, usually have to be convinced of the wisdom of moving beyond the borders of the U.S., particularly when it comes to fixed income instruments. Kvale said new clients often do not have any international diversification in their fixed income investments, although most do in their equities. However, he said, “Our mantra is, fixed income needs to be diversified just as equities are.”
Long term, he said he looks to emerging markets, although he knows they’re somewhat out of favor.
“From our standpoint, emerging markets are maybe like the U.S. was 70, 80 years ago,” he said. “The volatility can be great and allocation needs to be made accordingly.”
The normal level of allocation he uses at his firm is “maybe 30% of equities in international, and of that maybe 5, 10% in emerging markets. We understand that those emerging markets are like small caps. Developed international [markets are] like large companies here, and tend to react like that. Emerging markets are like small companies here, but can be even more volatile.”
