While clients may have to be educated about the value of international diversification in a portfolio, William Suplee of Structured Asset Management, Inc. is a firm believer that it’s worth the effort. Putting international exposure into client portfolios via ETFs and mutual funds provides both bigger opportunities, through a broader investment universe, and helps to spread risk—something else that benefits a portfolio.
“While we recognize that international markets are slightly over 50% of the investment universe, we generally start our client portfolios at around 30% international,” said Suplee. “This is because we realize that people live and eat in U.S. dollars, and have a natural preference for their home country’s allocations,” he said.
“We’re a big believer in diversification because it allows us to have higher expected returns at lower levels of risk. We realize that to take these tilts towards international portfolios, you have to be patient, and we have to explain that to clients—that in order to capture these expected returns in other markets through diversification, you need to stick with a strategy over time,” he said.
That strategy over time includes rebalancing when the situation warrants, and as an example, Suplee said, “in the first quarter of this year we were buying more emerging markets funds. A rebalancing strategy is important. If we determine that international should be 30%, and it goes up to 50%, we would sell some of that and put it back into allocations. And if it dropped, we would buy it. [You have to] sell winners and buy losers, but you want to do it with a strategy in place, and even when it doesn’t feel comfortable,” he said.