There is a wide, but narrowing, information gap when it comes to investing in international asset classes.
Just 20 years ago, getting information about international asset classes used to be extremely difficult and costly, and often meant actually flying to some far-off destination to conduct research. The Internet has changed that. There’s now an abundance of information from data providers and analysts if you have the time and resources to seek it out, much of it for free.
But that’s the thing: Where do you start? Whether you have a small amount of investible capital, or if you’re part of the “mass wealthy” but still below the wealthy “one percent” of the population, chances are that finding information on international asset classes is tough. And even if you do, will you understand the significance of the information, and how it relates to your portfolio?
To illustrate the information gap, take timberland. The Jeremy Granthams (of GMO) of the world have spent their careers and have been able to see the data that exists on timberland, so they can see a growing gap between supply and demand for trees. They have watched a housing bubble grow and explode, and can see that housing will rebuild itself at some point. They have watched China buy more and more commodities to build factories and condos, buying up iron ore, copper, aluminum and other building materials from Latin America. And they have watched Latin America and Asia begin to turn to wood for homes and industrial uses, where in the past they used materials like cement, steel and adobe. And they have watched demand for paper and cardboard flatten out and begin to grow again, knowing that newspaper print has been supplanted by, among others, shipping boxes on goods bought on the Internet.
Institutional investors also know that investing in timberland differs from country to country. Real estate investment trusts, or REITS, are a popular way of buying up timberland in the United States. But REITS were created as a way to fit into to the U.S. Internal Revenue Service tax code. Around the globe, timberland comes in a variety of different vehicles. Some of those are based on country tax codes, and others are linked to the companies that own the land and where their revenue comes from.
Timberland is just an example. But those are the types of global, long-term investment perspectives that investors need to have access to.
Within the stock market itself, investors can have their own mini version of asset class diversification by simply putting more of their money into slices of the equity and fixed-income market like international small-capitalization stocks, emerging markets, international bonds, and real estate investment trusts.
The point is, it’s a big world. And the likelihood that U.S. stocks are going to lead the market over the next 10 years is slim. As small investors have more information and access about investments in the rest of the world, the more they will be able to make more educated investments.
(Final part of a three-part series on International Asset Classes)