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February 24, 2015 at 08:20 PM
Igor Tiguy at Twelve Points Wealth Management follows an investment strategy for his clients that is much more focused on international investments than the typical advisor. In fact, his whole firm pursues international diversification as a major—and vital—portion of client portfolios, and doesn’t hesitate to pursue opportunities when they present themselves.
Tiguy and David Clayman, principal and wealth advisor at the firm, talked about how important the international component is to the portfolios they design. Part of the firm’s strategy since its inception, international investing has been part of both men’s approach since their earlier work at full-service planning shops, where Tiguy said it was “part of the process of designing a portfolio. International investments were always a part, both on the equity and the fixed income sides.”
The firm’s approach to portfolio construction, Tiguy said, includes three sleeves—core, hedged and opportunistic. All three sleeves typically include international investments.
“Compared to the typical advisor, we’re significantly overweight for a number of reasons. The market cap of the U.S. stock market is anywhere from 35–40% of the world [market cap]. Why limit yourself to such a low percentage?” He added that a lot of newer mutual funds are “adopting a global mandate, instead of U.S.-only or international-only. If you’re looking at Ford, why not Toyota and BMW too? That’s the approach we’ve taken to building portfolios,” Tiguy said.
Clayman added that while the percentage of international holdings within a portfolio varies by such factors as model and risk tolerance, among others, within the core equity sleeve, “about 40% of the allocation is U.S. and about 35% is developed international. Probably another 15–20% is emerging markets, and another 5–10% is frontier—places like Africa or parts of Latin America that are not even classified as emerging markets at this time.”
Within the firm’s alternative investments, somewhere between 35–40% is international, and in fixed income they consider the U.S. market as “historically expensive.” As a result, they look elsewhere for returns—“We go places where traditional [investors] can’t, but also [where we can find] a steadier, less volatile return.”
The firm also looks at currencies as part of a portfolio. Some of that is done through fund managers that hedge against currencies as part of their portfolio, and some is done directly. The euro and the yen are currently out of favor with them, as is the British pound, but that’s not the case with some emerging market currencies.
“We generally agree that if you look at emerging markets, valuation is cheap right now and offers the best opportunity for the long view. If you look at valuation, PEs in the emerging world are almost in the single digits in some countries, but in the U.S., sometimes they’re 20 times trailing earnings,” Clayman said.