Discovering the wide world of global equity.

Tired of hearing about the same old boring Canadian bank or energy stock? See the world and invest in stocks of a major pharmaceutical company(e.g., Merck, Novartis)or an exciting technology company (e.g., Intel, Toshiba). Travelling abroad expands the opportunities available to you and can provide portfolio diversification.

Top destinations

Currently, the three major global equity destinations are the U.S., Europe and Asia. For your travels outside Canada, plan to spend about 50% of your time in the U.S., 35% in Europe and 15% in Asia. These percentages correspond nicely to the weight of each of these regions in the Morgan Stanley Capital International (MSCI)World Index(excluding Canada).

For more adventurous travellers, emerging markets(EM) may provide a more rewarding trip. If you wish to invest in these exotic locations, allocating 10% of your travel time(corresponding to the weight of EMs in the MSCI All Country World Index) might be a good benchmark. Be aware that these countries have been hot stops recently. At the end of June 2007, the MSCI Emerging Market Index had a five-year annualized return of 21.6% and a one-year return of 39.1%. You may want to consider waiting until the place cools down a bit before investing there.

Choosing your travel agent

Selecting the proper “travel agent”(i.e., your money manager)will help make your trip more enjoyable. Money managers come in many varieties with a broad range of services. “Top-down” managers focus more on the “big picture”(i.e., countries, currencies and sectors), whereas “bottom-up” managers focus on specific attractions(i.e., individual stocks). Other approaches concentrate on growth versus value or large capitalization versus small capitalization.

You may be led to believe that in a global environment, region or country selection is of minimal importance. But would you say that visiting a church in Spain is the same as visiting a mosque in Israel or a Buddhist temple in Japan? The same is true for stocks. If the region wasn’t an important factor, you would expect the returns of a given sector to be more or less the same across all regions. However, you’ll see that picking the right regions—or selecting a manager who can identify these regions— has a significant impact on returns.

Getting around

The vehicle of choice for travelling abroad is the commingled fund, which offers the advantages of diversification and ease of use. But travellers beware—not all commingled funds are created equal. Always ask for the latest trust agreement and verified financial statements of the fund. In these documents, you should find the answers to the following important questions:

1)What is the fund’s investment policy?

2)What are the roles of the trustee, the custodian and the manager?

3)What are the expenses charged to the fund(Management Expense Ratio)?

4)When can I purchase and redeem units?

5)Are there costs associated with purchases and redemptions?

6)What is the turnover ratio?

7)Is there a security-lending policy?

8)Is there a proxy-voting policy?

Having a separate account where managers directly purchase stocks(instead of purchasing units, as in a commingled fund)is an interesting travel option for larger plans. A separate account offers greater flexibility, since the manager can more easily tailor the portfolio to meet your specific needs. You’ll also benefit from more extensive and detailed reporting. But the added flexibility and transparency of travelling “first class” comes at a cost. If you’re not sure which option to choose, consultants and custodians can help you determine the travel arrangements that will work best for you.

Robert Brunelle is senior vice-president at Hexavest in Montreal.

For a PDF version of this article, click here.

© Copyright 2007 Rogers Publishing Ltd. This article first appeared in the October 2007 edition of BENEFITS CANADA magazine.


Copyright © 2020 Transcontinental Media G.P. This article first appeared in Benefits Canada.

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