A lot of folks missed out on the resurgence of Europe in 2012, with the iShares MSCI Germany Index Fund ETF (NYSE:EWG) roughly doubling the S&P 500 among other high-fliers.
And in 2013, investors still need to be prepared to look abroad for opportunities. Because based on the numbers, it could be crucial to look overseas to get outperformance in the New Year. Consider the following:
Global Stocks at New Highs: The FTSE All-World index, a truly global composite, is flirting with four-year highs. Also worth noting is that Asian stocks are at 18-month highs, and London is at a five-year high.
Fund Flows Favor Emerging Markets: Recent data shows big inflows of money to emerging market equity funds, with China, Korea and Brazil leading the way. Consider that in calendar year 2012, the landmark Vanguard MSCI Emerging Markets ETF (NYSE:VWO) added $10.6 billion.
So-Called “Currency Wars”: Inflation hawks in Congress continue to fret about deficits and the threat of a crashing dollar, but worldwide there actually is a race to devalue currencies to gain a competitive advantage. Some label it manipulation, but it’s really just economics — cheaper currencies make exports more attractive abroad and can boost GDP growth rates. If this is the environment we are facing in 2013, and if exchange rates move against us, being locked into just the U.S. without proper international and multinational exposure could be bad for your portfolio.
Emerging-Market M&A: Emerging markets are driving M&A in the food producer space. That was the case with Heinz (NYSE:HNZ), which was bought out this week by Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A, BRK.B) and 3G. That was the reason for the recent split between Kraft (NASDAQ:KRFT) consumer staples and its Mondelez (NASDAQ:MDLZ) snack food biz. And that is the reason mega-brewer Anheuser-Busch InBev (NYSE:ABV) is so eager for a buyout of emerging-market beer stock Grupo Modelo (PINK:GPMCF). The reasons behind this surge is obvious: There is more growth there, as the developed world has reached saturation with its processed foods and snacks.
Of course, not all international markets are created equal — and one region I’m particularly bearish on is India. But generally, if you’re seeking opportunity in 2013, you have to look abroad.
So, where should you be looking?
The easiest answer is a broad-based, low-cost emerging-market fund like Vanguard’s VWO.
However, if you want to dabble in country-specific plays, then iShares provides a large suite of funds to pick from. Some recent high-fliers include the iShares MSCI Thailand Index Fund (NYSE:THD), which is up almost 30% in the last six months. Also noteworthy is the iShares MSCI Turkey Index Fund (NYSE:TUR), which is up more than 20% in the past six months and tallied 60% gains in calendar year 2012 to beat all other country ETFs.
You can, of course, buy directly into international stocks that trade as ADRs. Stock picker Charles Sizemore is very bullish on Germany’s Daimler (PINK:DDAIF), for instance, and has selected the automaker as his best stock for 2013. So far, he has gotten 10% gains since Jan. 1 in the pick.
Other alternatives include multinationals with a strong emerging-market presence. Take Yum! Brands (NYSE:YUM) that owns Pizza Hut, KFC and Taco Bell. It derives more than half of its revenue from overseas despite being a consumer favorite here in the states.
In other words, there is no shortage of ways to play the global equity markets. So consider looking abroad both for diversification and to tap into profits should the U.S. lag its competitors on the global stage.
- The best and worst country ETFs of 2012. (ETF Database)
- Everything you need to know about Europe in 500 words. (The Slant)
- A quick primer on investing in international stocks. (InvestorGuide.com)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing he did not own a position in any of the stocks named here.