For Marcio Silveira of Pavlov Financial Planning, investing is all about emerging markets.
Well, not all about them, but certainly a large chunk of his clients’ portfolios are devoted to low-cost, index-tracking ETFs that not only offer better diversification, but also take advantage of the imperfect correlations between EMs and the U.S.
Silveira, who was born and raised in Rio de Janiero, Brazil, comes at the investing picture from a different direction than many other advisors. In Brazil he was an equity analyst for a global macro hedge fund, where he got hands-on experience with the difficulties of active management in countries other than his own.
“I was making stock picks in a very active organization,” said Silveira. “They were doing better than others in Brazil, but struggling in international markets—other emerging markets were much harder to trade than local stock.” While a home bias paid off under those circumstances, because “I realized we [did] have an edge at home, but not abroad,” a move to Miami to become a relationship manager in the international private banking world offered fresh insights.
When he made the move to certified financial planner and founded Pavlov, all those varied experiences stood him in good stead, particularly when it came to the home country bias. It’s not as serious for Americans to indulge their bias as it is for foreign nationals, said Silveira, because the American market is widely diversified across types of businesses and because it “already provides a lot of weight in the global economy.” In addition, “many U.S. corporations do business abroad and a big chunk of their revenue comes from international sales. So even the S&P 500 gets big international exposure.”
But it’s a different story for some such as Canadians, who would end up overexposed to mining stock if they followed their own home country bias. And even so, Americans can be determined to keep most of their assets at home.
Silveira keeps between 40% and 50% in U.S. investments, with the rest international. “Many clients are not comfortable [with that], and want more in the U.S.,” he said, even his international clients who “didn’t grow up here but moved here and developed a home country bias for the U.S. and sometimes [also have it] for their home country as well.”