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Get Out of the U.S.

By Dan Dzombak - Updated Nov 11, 2016 at 4:48PM

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You need international exposure.

"Get out of the U.S."

That was the advice top-performing endowment manager Edward Hunia gave when he recently visited Fool headquarters.

As the chief investment officer of the Kresge Foundation, he outperformed the average billion-dollar endowment by 14% in the 12 months ending in June -- so his words carry some weight.

He's not suggesting you should move to China -- but he is suggesting that your portfolio should.

Go where you aren't
Why does international exposure matter?

When you ignore foreign markets, you miss out on great growth. Emerging economies such as Brazil, Russia, India, and China have seen average annual growth of more than 8% a year, compared to 3% and slowing for the U.S. Like small-cap stocks, emerging markets are exciting precisely because they have so much room to grow before they become saturated, developed markets like the one we live in.

Many investors got scared off, though, when both developed and emerging foreign markets followed our market into a sharp decline this year. But as my colleague Tim Hanson pointed out, emerging markets have been oversold -- and they're currently priced as though they'll lag the U.S. going forward, despite the fact that emerging economies are expected to outperform the U.S. and its developed counterparts for years to come.

In other words, right now you can buy the huge opportunities represented by emerging markets like India and China ... for pennies on the dollar.

A bigger piece of the pie
This emerging-markets sale is especially timely, given that Ibbotson Associates recently recommended that American investors should invest 35% of their portfolios abroad, with at least a third of that allocation devoted to the emerging markets.

But 35% of your portfolio in foreign stocks is still too low, according to Hunia. U.S. stocks make up only 12% of Kresge's endowment -- and only one-third of its equities. Another third of its equities is in large foreign stocks, and the final third is in emerging markets.

Hunia's not alone with this allocation. PIMCO co-CEO Mohamed El-Erian, former head of Harvard's endowment, told Money magazine, "The world of tomorrow suggests a much greater exposure overseas. ... [Y]ou should consider holding a third of your equities in the U.S., a third in industrial countries outside the U.S., and a third in emerging markets."

In other words, both Hunia and El-Erian think you should invest two-thirds of your total equity portfolio abroad.

Where you could start
So, if you're convinced that international investments are a good idea and that you need greater exposure in your portfolio, where do you begin?

One way to increase your exposure to foreign stocks is to invest in ETFs that track various segments of the foreign market. The iShares MSCI EAFE Index (EFA), for example, tracks blue-chip stocks in Europe, Australia, and the Far East, including Toyota (NYSE:TM) and Novartis AG (NYSE:NVS).

The iShares MSCI Emerging Markets Index (EEM), on the other hand, tracks some of the best companies the developing world has to offer, including United Microelectronics (NYSE:UMC) and Taiwan Semiconductor Manufacturing (NYSE:TSM).

But while broad indexes will get you exposure, you'll be exposed not only to the best foreign markets have to offer, but the worst as well. If you want to concentrate your investments in winners, you need to pick at least a few individual stocks.

The world of international investing is, well, pretty wide. So how do you narrow the field to find the winners? Our team at Motley Fool Global Gains looks for companies with strong cash flows and strong competitive advantages.

Here are three companies that exemplify these traits.


Home Country

Free Cash Flow (in millions)

Market Position

CGG Veritas (NYSE:CGV)



Leader in seismic technology for finding oil

Andina Bottling (NYSE:AKO-A)



South American bottler and distributor of Coca-Cola products

Novo Nordisk A/S (NYSE:NVO)



Global leader in diabetes care

The Global Gains team also looks for price tags that more than compensate you for country and currency risk -- so always do your valuation research on international stocks.

The Foolish bottom line
Every investor should be exposed to the best companies outside of U.S. borders -- and in significant quantities. You can always gain exposure to foreign markets through low-cost ETFs and mutual funds. But if you're looking for stocks to boost your portfolio, consider hand-picking the best that international markets have to offer.

If you find the research involved to be daunting, consider our Global Gains investment service -- free for 30 days. We recommend two new stocks every month, as well as our best bets for new money now. Click here to get started -- there's no obligation to subscribe.

Dan Dzombak lived in China for six months. He misses Beijing Duck and five-cent dumplings. He does not have a financial position in any of the stocks mentioned in this article. Novo Nordisk A/S, Andina Bottling, and CGG Veritas are Motley Fool Global Gains selections. Coca-Cola is an Inside Value choice. The Fool's disclosure policy sees a lot of great deals right now.


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Stocks Mentioned

Toyota Motor Corporation Stock Quote
Toyota Motor Corporation
$157.79 (3.17%) $4.85
Taiwan Semiconductor Manufacturing Company Limited Stock Quote
Taiwan Semiconductor Manufacturing Company Limited
$88.48 (3.84%) $3.27
Novartis AG Stock Quote
Novartis AG
$87.00 (-0.17%) $0.15
Novo Nordisk A/S Stock Quote
Novo Nordisk A/S
$106.52 (1.84%) $1.92
United Microelectronics Corporation Stock Quote
United Microelectronics Corporation
$6.92 (3.82%) $0.26
Embotelladora Andina S.A. Stock Quote
Embotelladora Andina S.A.
$9.30 (1.09%) $0.10

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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