Your Portfolio May Be Less ‘International’ Than You Think

Considerable bias to U.S. investments persists in advisor portfolios, according to research from Janus Henderson.

To focus on home bias and other prominent industry trends, Janus Henderson tracked the average allocations across the thousands of advisor models it analyzes.

Based on this proprietary model analysis database, the firm finds that the average advisor’s global developed equity allocation consists of only 22% international equity, while the MSCI World Index allocates 40% to international equity.

“Portfolios may be missing out on international equity income opportunities, not to mention the potential diversification of both growth and risks compared to U.S.-based holdings,” according to Janus Henderson. “While international investments can present a unique set of risks investors should consider carefully, adding foreign exposure can enhance portfolio diversification, potentially lowering risk over long-term horizons while allowing investors to take advantage of growth potential outside the U.S.”

The firm then addresses three of the most common concerns it hears about investing abroad and international exposure.

It’s wrong to think multinationals make a portfolio global.

Because many of today’s larger companies have global sales and suppliers, Janus Henderson sometimes hears the argument that there is little benefit to diversifying stocks by geography.

According to the research, 30% of the total revenue of companies in the S&P 500 comes from outside the country.

“It is true that companies are more global than ever,” the firm admits. “However, investing in multinationals through domestic markets doesn’t necessarily provide broad or balanced international exposure.”

As Janus Henderson points out, no two countries have the same sector exposure footprint.

The U.S. is skewed toward technology and health care sectors, while the ex-U.S. portion of MSCI World has its highest concentration in financials and industrials.