England voted to exit the European Union in 2016 and other countries could follow suit but advisors and fund managers suggest that now is not the time to abandon investing abroad entirely.
“Some European companies will thrive despite the turmoil because they are better structured as global enterprises and are more attractively valued than their U.S. peers,” said John Fischer, a registered investment advisor and president of Andalusian Wealth Management.
The concern among experts is the rise in power of extremists that could prompt other countries in the EU to start the process of withdrawal of the newly formed trading bloc as well.
In 2017, Holland and Germany will hold parliamentary elections while France will vote in a new president.
“If the far right or the far left gets in power by winning a very large part of votes, then you can infer that there might be a vote on exiting the European Union in other countries a couple of years down the road,” said Martin Skanberg, manager of the Schroder European Fund.
To avoid the volatility created by an uncertain political environment, Skanberg suggests sticking with European healthcare companies, such as Roche and Novartis in Switzerland and Sanofi in France, as well as biotech and innovation companies. “They are seeing a lot of pricing pressure because generic drugs are coming in,” said Skanberg.
Although staying invested domestically in comparable companies such as Merk and Pfizer is tempting, adding international stocks to a U.S. portfolio can increase expected returns and decrease risk, according to Zack Shepard, vice president of Matson Money, which manages $6.6 billion in Scottsdale, Ariz.
"International small-cap stocks are an asset class that investors should own due to their long history of consistent returns,” Shepard said.
International small companies have returned more than 14 percent annualized since 1975 which includes during times of turmoil and uncertainty, according to the Dimensional International Small Company Index.
“International equities combined with domestic investments provide for diversification and growth in a fund or portfolio over the long-term,” said Kelly Luethje, CFP with the Willow Planning Group in Boston.
Assuming stocks in the U.S. will continue to do well is an expectation that could falter especially with a new president on the horizon, according to Daniel D. Joss, founder of Joss Financial Group in Williamsburg, Va.
“Many are guessing at what the Trump administration will change but no one knows for sure,” Joss said. “As a result, a global approach to equity investment is prudent.”
That global approach to investing includes emerging markets.
"If you're a long-term investor, as long as you get high yields and the currencies are cheap, you'll be fine and it’s not just what's going to happen in Italy, France or Holland, if the price of oil falls again, that will affect Colombia, Brazil and Russia,” said Matthew Michael, product director, emerging markets debt and commodities at Schroders in London.
Juliette Fairley is a business and finance journalist who has written four personal finance books for John Wiley & Sons and has written for major news organizations, such as The New York Times and The Wall Street Journal. She is a member of the American Society of Journalists and the New York Financial Writers Association and a graduate of Columbia University's Graduate School of Journalism. Juliette can be reached at email@example.com.
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