Milad Taghehchian of Pioneer Wealth Management Group has been involved in international investing for 15 years, and if there’s one thing that’s been consistent over that period, it’s that the best countries or areas in which to invest keep changing.

Diversification outside the U.S., Taghehchian said, benefits client portfolios when the country or market is not correlated with U.S. equities—but that’s not a static factor. “In the early part of those 15 years, emerging markets, specifically China, Russia and India—they were big favorites of ours. But over the last four or five years, things have changed; that’s a moving target.”

Recently “international markets haven’t performed as well as the U.S.,” he said, with U.S. and developed markets pretty tightly correlated and European markets not quite keeping pace with the U.S. market. But that hasn’t always been the case. Emerging markets have provided some exposure to markets that were not correlated to the U.S.

“If you go back prior to, I’d say the [period of the] tech bubble to 2008, there are great examples of what exposure to emerging markets did in portfolios. It’s very volatile in emerging markets, but over that time period they did extremely well,” Taghehchian said. “That’s the kind of thing that can change, and it’s tough to predict the effect it will have on a client portfolio—and that’s why we look for something different from U.S. equities—[so that it’s not] tightly correlated.”

Taghehchian said that at Pioneer “we don’t really look at frontier markets, but we are looking within emerging markets and even developed markets for opportunities that may be coming up. As far as good opportunity these days, it’s tough to find great opportunities in this market. We’re looking for stuff that’s discounted—cheap relative to what we think the valuation should be. These days, it’s really tough to find that. Everything seems to be overpriced. China and greed may be helping [to cause that]. With China, the way they calculate their GDP has been a deceiving factor in increasing valuations over the last 5–10 years. They have a long way to go.”

Pioneer uses a mix of ETFs, mutual funds, ADRs and bonds, although “we don’t really mess with currencies,” he said. The combination of types of investments “depends on the client, the risk they’re comfortable with and how large the portfolios are.”

With portfolio designs based on the client’s risk and timeline, there’s some variation in the proportion not just of the form of investments, but also of fixed income vs. equity. International allocation makes up “around 30–40% of total equity holdings,” he said, and that’s broken down between developed and emerging markets.

The amount of foreign exposure depends, of course, “on the size of the portfolio and what we think makes sense for the client in terms of transactions costs, exchange rate risk, and currency risk. You have to account for that,” he said. “The larger the portfolio, the smaller those risks.”

Then there are individual equities and bonds. “If the client is willing to deal with the additional risk of having individual ADRs and bonds rather than funds and ETFs, [there’s more of an] ability to diversify. Some clients are okay with that, and some absolutely don’t want to add additional risk to their portfolios.” It depends on what kinds of investments they’re comfortable with. Also, a larger portfolio cuts the costs involved with individual ADRs and bonds; that’s something else his firm takes into account. “I would say that is the same regardless of whether it’s an institutional or retail client,” he said.

Advisors considering branching out—or branching out further—into international holdings should consider a couple of additional factors when deciding on which investments to use, said Taghehchian. “If it’s something [the client is] interested in, you should be looking at the exchange rate risk if you’re investing in anything generating income, whether it’s dividends or interest from bonds. You could lose a lot of perceived return from fluctuation of the exchange rate,” he said.

Then there are accounting practices. “Some countries have different, and interesting, accounting practices, compared to us. If you’re into individual securities, you need to look at their financial statements and know what you’re reading.”

On the fixed-income side, “really, since 2008 or so, we’ve had a pretty significant portion [of the portfolio] in a combination of non-U.S. developed [market] bonds and emerging market bonds to help with return, since U.S. interest rates have been so low,” Taghehchian said. Percentagewise, those international bonds make up between 25–30% of the fixed-income portion of most portfolios. “It’s been pretty consistently that way for five or six years now. We anticipate that changing when interest rates climb in the U.S., but that’s also a moving target.”

While the firm does use ADRs, those make up a “very small portion” of a portfolio, as do individual bonds rather than bond funds. The actual quantity depends on the size of the portfolio and clients’ comfort level. Out of the 30–40% in non-U.S. equities, “the total in individual securities is probably something like 1–2% out of the total equity portion.”

The reason, of course, is the need to devote “a lot more time” to research and management. In addition, there are higher transaction costs and other concerns. “If the client situation warrants that,” he said, “it’s something we’ll definitely get into, but it’s got to be for a lot of reasons; the size of the portfolio has to be significant enough for it to make sense.”