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
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

Ameriprise, advisor on the hook to pay Edward Jones $4.7 million in trade secrets lawsuit.
Ameriprise, advisor on the hook to pay Edward Jones $4.7 million in trade secrets lawsuit.

In a constant fight over control of clients, the financial advice industry has a long history of such allegations and disputes.

Powering retirement for Wall Street
Powering retirement for Wall Street

Retirement fintech Vestwell has hit profitability and $200 million in annual recurring revenue, powering savings programs for 750,000 employers and Wall Street’s biggest firms

Advisor moves: LPL welcomes back RayJay advisor trio in Texas
Advisor moves: LPL welcomes back RayJay advisor trio in Texas

Meanwhile, &Partners has drawn another Wells Fargo team based in Missouri, while an experienced South Carolina advisor has returned to Cetera from LPL.

FINRA fines Vanguard $950,000 over decade of cost basis errors
FINRA fines Vanguard $950,000 over decade of cost basis errors

Faulty Forms 1099 and account statements reportedly left some Vanguard brokerage customers overpaying or underpaying taxes for over a decade.

More ETFs, more opportunity, more homework
More ETFs, more opportunity, more homework

The democratization of ETFs cuts both ways

SPONSORED In the Age of AI, Trust Becomes the Advisor's Greatest Asset

As AI makes financial information more accessible than ever, Lana Hock explains why human judgment, trust, and empathy remain the qualities clients value most in a financial advisor

SPONSORED Direct indexing webinar targets tax-loss harvesting amid market swings

Northern Trust’s Ken Lassner shows advisors how to convert volatility into after-tax portfolio gains