If you think investing in Coca Cola gives you international exposure in your portfolio, it’s time to reevaluate your global investing strategy.
Though highly touted by some advisors as a safe way to tap into emerging market growth, multinational companies are a poor substitute for true exposure. If you’re looking for growth, you need to invest at the source.
“It’s all about the math,” says Robert Holderith, founder and president of Emerging Global Advisors. “In the S&P 500, 12% of revenues come from emerging markets. If 12% of my revenues are growing at 20% and the other 88% are growing at about 4%, that’s not a good way to get exposure. If you want to invest in U.S. companies and you like the U.S., that’s fine.
I have no issues with that. If you want to buy growth and everything that comes along with growth – potential risks, potential slowdowns but also potential meaningful upside for return, you need to buy a company that is based in the fastest growing markets in the world and is growing its revenues at the fastest possible rate across the company’s revenue lines.”
“If a U.S. company had five companies and one was growing revenues at 20% and the other four were growing at 5%, they would spin that company off.
The shareholders would demand it because they’d want to be investing purely in growth. They don’t want the dilution of the other companies,” says Holderith. “I think that the boards of companies like Coca Cola, or other large multinational companies that do have a meaningful footprint in emerging markets, are going to want to consider spinning off the fastest growing parts of their companies, which are emerging markets.
Currently, with 12%, 20% or 30% of revenues coming from emerging markets, those companies aren’t growth stock plays. The math is easy to do.
They’re too watered down, too diluted.”Holderith founded Emerging Global Advisors in 2008, addressing what he saw as a missing chunk in emerging market offerings. While investors could easily access broad indices and country-oriented funds, there was no way to buy into a specific thesis in emerging markets.
“If you wanted to be defensive, for example, or if you wanted to own consumer goods or telecom, there was no way to do that a couple of years ago.
If you are an investor in U.S. securities or U.S. exposures, there are dozens of ways to get those exposures. In 2008, there was no way to express your point of view in emerging markets. There was no normalization of the investment process. That’s the number one reason I started the firm,” says Holderith.
Drilling down in emerging markets is critical for investors to decrease volatility while still capitalizing on the rapid growth of the markets.
Emerging Global Advisors is on the forefront of the emerging markets exchange traded fund industry, offering a variety of ETFs that allow investors the ability to broaden the scope of their investments while simultaneously decreasing their reliance on a single emerging market economy. Such ETFs also avoid the dominance of a handful of big cap companies that might not relate to a particular investment thesis.
“If I own the basic materials ETF in emerging markets, it has exposure to eleven different countries and eleven different currencies, as well as 30 different names,” says Holderith. “That’s less risky than, say, buying the Brazil ETF as a placeholder for basic materials.
There, if Rousseff doesn’t do the same job for the economy that Luiz Inacio Lula de Silva does, or if the Brazilian Real goes down in value, you have country-specific risk.
So it’s all about diversification, it’s about spreading your risk around. The basic materials ETF has only basic materials companies in it. If you buy the Brazil ETF as a proxy, you get Banco Itaú and other companies that aren’t necessarily basic materials companies.”
Though some investors point to this sort of diversification as dilutive, similar to the watering down that Holderith faults in multinationals, Holderith sees the small hit in upside as being more than offset by decreased risk.
“The hope in emerging markets is that there’s plenty of upside to go around. If you can capture 90% of the emerging markets upside and take 20% of the risk away, that’s a trade most growth investors will take.”
forbes.com
Though highly touted by some advisors as a safe way to tap into emerging market growth, multinational companies are a poor substitute for true exposure. If you’re looking for growth, you need to invest at the source.
“It’s all about the math,” says Robert Holderith, founder and president of Emerging Global Advisors. “In the S&P 500, 12% of revenues come from emerging markets. If 12% of my revenues are growing at 20% and the other 88% are growing at about 4%, that’s not a good way to get exposure. If you want to invest in U.S. companies and you like the U.S., that’s fine.
I have no issues with that. If you want to buy growth and everything that comes along with growth – potential risks, potential slowdowns but also potential meaningful upside for return, you need to buy a company that is based in the fastest growing markets in the world and is growing its revenues at the fastest possible rate across the company’s revenue lines.”
“If a U.S. company had five companies and one was growing revenues at 20% and the other four were growing at 5%, they would spin that company off.
The shareholders would demand it because they’d want to be investing purely in growth. They don’t want the dilution of the other companies,” says Holderith. “I think that the boards of companies like Coca Cola, or other large multinational companies that do have a meaningful footprint in emerging markets, are going to want to consider spinning off the fastest growing parts of their companies, which are emerging markets.
Currently, with 12%, 20% or 30% of revenues coming from emerging markets, those companies aren’t growth stock plays. The math is easy to do.
They’re too watered down, too diluted.”Holderith founded Emerging Global Advisors in 2008, addressing what he saw as a missing chunk in emerging market offerings. While investors could easily access broad indices and country-oriented funds, there was no way to buy into a specific thesis in emerging markets.
“If you wanted to be defensive, for example, or if you wanted to own consumer goods or telecom, there was no way to do that a couple of years ago.
If you are an investor in U.S. securities or U.S. exposures, there are dozens of ways to get those exposures. In 2008, there was no way to express your point of view in emerging markets. There was no normalization of the investment process. That’s the number one reason I started the firm,” says Holderith.
Drilling down in emerging markets is critical for investors to decrease volatility while still capitalizing on the rapid growth of the markets.
Emerging Global Advisors is on the forefront of the emerging markets exchange traded fund industry, offering a variety of ETFs that allow investors the ability to broaden the scope of their investments while simultaneously decreasing their reliance on a single emerging market economy. Such ETFs also avoid the dominance of a handful of big cap companies that might not relate to a particular investment thesis.
“If I own the basic materials ETF in emerging markets, it has exposure to eleven different countries and eleven different currencies, as well as 30 different names,” says Holderith. “That’s less risky than, say, buying the Brazil ETF as a placeholder for basic materials.
There, if Rousseff doesn’t do the same job for the economy that Luiz Inacio Lula de Silva does, or if the Brazilian Real goes down in value, you have country-specific risk.
So it’s all about diversification, it’s about spreading your risk around. The basic materials ETF has only basic materials companies in it. If you buy the Brazil ETF as a proxy, you get Banco Itaú and other companies that aren’t necessarily basic materials companies.”
Though some investors point to this sort of diversification as dilutive, similar to the watering down that Holderith faults in multinationals, Holderith sees the small hit in upside as being more than offset by decreased risk.
“The hope in emerging markets is that there’s plenty of upside to go around. If you can capture 90% of the emerging markets upside and take 20% of the risk away, that’s a trade most growth investors will take.”
forbes.com
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