Nancy Bryant of Bryant Financial Advisory has been using international investing since she began in 1990. “I’m heavier in international than I used to be then,” she said. “When I started out, the first [international mutual fund I used] was probably Artisan.”
Bryant reviews client portfolios as if she manages all client assets, even if that’s not the case. “The right hand has to know what the left hand is doing,” she said. “If I’m going to employ a certain asset allocation for that client, I have to know what they’re doing and work around that, unless the client says, ‘Don’t worry about it, and treat it as though you’re the only one investing for me.’”
Whether she’s managing a given investment or not, she’ll tell clients whether she believes it’s suitable, or even suggest that they change it “so I can provide the allocation for the portfolio that I think [they] should have. They’re going to have a diversified portfolio. If they’re relying on my advice, they will have some international,” Bryant said.
That international portion could be as little as 10% to as much as 25%, Bryant said, depending on how conservative or aggressive the client is. But international is vital to how Bryant works. “The whole concept is that when you create a diversified portfolio of asset groups that zig and zag over a particular cycle, what you’re doing is smoothing out the client’s return,” she said.
Although “everything is so interdependent these days, what affects Europe affects the U.S.; what happens to emerging markets happens to us,” Bryant said, “typically international stocks don’t have a complete correlation to U.S. stocks. When the U.S. zigs, maybe international zags a little bit. You want that, because it lowers the overall portfolio risk and smooths out the return over time. That was my main reason for going into international stocks.”
Despite the fact that correlation between domestic and international has increased, Bryant said that another advantage of international investing is the ability “to take advantage of profitability coming out of economies other than the U.S., that may even be growing faster than the U.S. You’re going to take advantage and benefit from that,” she said.
When it comes to regions, Bryant uses a diversified international equity fund that is mostly concentrated in Europe on “more stable and established economies.” Then she adds Asia through Matthews Funds. “If you look at Asia, most are emerging markets—India, China—with the exception of Japan [as a developed market]…. I do have aggressive portfolios with emerging markets,” she said. “I don’t play country or sector funds except Asia.” That provides exposure to Indonesia, Malaysia and the smaller countries in the region. “I haven’t used a Latin American fund, but I have Brazil exposure through other funds.”
In addition to Matthews for Asian equities funds, Bryant also uses global bond funds such as Vanguard and DFA to provide both active and passive exposure. She ticked off others on the list: “Templeton Global, Loomis Sayles Global, Vanguard’s International Bond Index. They have an ETF version, and that’s what I use…. Generally I use international bond funds that are hedged rather than unhedged. I don’t want the risk of what unhedged bond funds can do,” Bryant said. “You want to be more safe with a bond fund; you don’t want to take more risk than in a foreign equity fund. I don’t buy hedged in equity; I buy unhedged. You want the currency risk there, but not in bonds.”
Anyone who wants to stay out of international because they’re worried that international economies are “weak or precarious,” said Bryant, is making a timing decision. To illustrate that, she pointed to the pace at which the U.S., Europe and Asia came out of the financial crisis, with the U.S. emerging first. As a result, Europe and Asia are still emerging and growing, and are “not in the same economic cycle” as the U.S.
A disciplined approach, she said, realizes that from time to time international will outperform the U.S. and provide growth when the U.S. doesn’t. She said, “In the short run, that might expose the portfolio to more risk, but in the long run I’m smoothing out the return” by having assets both within and outside the U.S.