Invest in growth, not geography, American Funds says

An adviser building an equity portfolio is very likely doing so around global benchmark indexes such as the S&P 500 or the MSCI EAFE, but according to American Funds, there is a better way.
MAY 03, 2013
By  JKEPHART
A financial adviser building an equity portfolio is very likely doing so around global benchmark indexes such as the S&P 500 or the MSCI EAFE, but according to American Funds, there is a better way. "Advisers need to think less about geography and more about the real objective," said David Polak, vice president of Capital Group Institutional Investment Services, a subsidiary of American Funds. "Where a company is domiciled used to be a good indicator of its economic exposure," he said. "Now, companies do business all over the world. A different lens is required," Mr. Polak said. In the S&P 500, for example, about 40% of the index's revenue comes from outside the United States, so investors who think that they are buying only American companies are actually getting a global portfolio, he said. It isn't just a U.S. phenomenon. Take British luxury company Burberry Group PLC, for example. Even though it is based in the United Kingdom, it gets 75% of its revenue from outside Europe. "If you're buying a European [exchange-traded fund], you're probably not getting what you think you are," Mr. Polak said. So instead of building portfolios around indexes that group companies together based on where they are located, advisers should start by targeting a goal, such as capital appreciation, he said. Then look to areas of the world where there is growth, such as the emerging markets, and find companies that have growing revenue there, Mr. Polak said. "All portfolios are already global," he said. "But why have a fund that groups companies together just because they're located in the same place?"

Latest News

LPL adds $600M UBS team in Tennessee
LPL adds $600M UBS team in Tennessee

The firm's latest additions, led by a second-generation financial advisor, are striking out via its Linsco employee advisor channel.

eMoney supports focused financial planning with enhanced needs analysis
eMoney supports focused financial planning with enhanced needs analysis

The Fidelity-owned fintech aims to help advisors connect with mass market and mass affluent prospects with single-goal conversations.

Trump SEC pick Paul Atkins grilled by Democrats in early political test
Trump SEC pick Paul Atkins grilled by Democrats in early political test

The prospective chair of the agency has pledged to shed conflicted interests and "return common sense to the SEC."

Finra moves to boot Alpine Securities, same firm that claims the regulator can’t
Finra moves to boot Alpine Securities, same firm that claims the regulator can’t

'If I were on the side of Alpine Securities, I’d put all my eggs in the federal court,' one attorney said.

CFP Board floats new procedural rules around bankruptcy, misdemeanors
CFP Board floats new procedural rules around bankruptcy, misdemeanors

If approved, the proposed revisions would achieve outcomes similar to the existing process while reducing the burden of oversight.

SPONSORED Retirement plan balances are flourishing. Why are so many advisors missing out on a $3 trillion opportunity?

Participants who receive professional 401(k) advice see higher returns on average, net, than those who don't.

SPONSORED Focus on clients, not compliance – why Gary Corderman found his fit with Farther

This wealth management platform finally delivers on the technology promises other firms couldn't - giving advisors a better way to scale and serve