Emerging Market Exposure Through Multi-Nationals
Investing in emerging markets for growth seems to be quite alluring. Exchange Traded Funds (ETFs), mutual funds, and other investment vehicles have sprung up in recent years making investing in emerging countries extremely accessible. However, here at YCG, we often find we are best able to invest and take advantage of the growth in emerging markets by investing in the United States. How so?
Pat Dorsey, Director of Equity Research for Morningstar, conducted a study to see how much revenue comes from outside the U.S. with each company in the S&P 500. He concludes that “about 40% of the net income from the S&P 500 comes from outside the U.S.” Take Coca-Cola, for example – over 80% of their profits come from outside of the U.S!
There are many advantages to investing in emerging markets indirectly via U.S. companies. For one, investing in the U.S. provides an even playing field with all the companies reporting and using GAAP accounting. With this uniform financial reporting system, analysts can more easily make objective investment decisions with apples to apples comparisons. Also, since revenue streams at these companies tend to have such geographical diversification, two natural byproducts of investing in them are you fortuitously receive currency diversification and you reduce political risk to a portfolio. Finally, an investor can receive indirect benefits to the faster growth of the emerging markets while still having the financial backing of the solid balance sheets owned by many of these multi-national corporations.
Bottom line, there is a simpler, less risky, and conservative method to gain foreign investment exposure and it’s by investing in large multi-national companies.
Click here for the transcript and video of Pat Dorsey’s Complete Report
Disclaimer: The specific securities identified and discussed should not be considered a recommendation to purchase or sell any particular security. Rather, this commentary is presented solely for the purpose of illustrating YCG’s investment approach. These commentaries contain our views and opinions at the time such commentaries were written and are subject to change thereafter. The securities discussed do not represent an account’s entire portfolio and in the aggregate may represent only a small percentage of an account’s portfolio holdings. These commentaries may include “forward looking statements” which may or may not be accurate in the long-term. It should not be assumed that any of the securities transactions or holdings discussed were or will prove to be profitable. Past performance is no guarantee of future results.