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.”
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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.