When domestic stocks don't live up to investor expectations, a lot of people brush off their passports and start looking overseas for greater growth opportunities. It's a smart move -- after all, the U.S. is on track to take on an increasingly smaller role on the global investing stage in the coming years. Up-and-comers like India and China are likely to be the big superstar producers in the near future. But those who discount investment opportunities here at home do so at their own risk.
Keeping it local
Given that the U.S. economy is predicted to grow at a slower rate than much of the rest of the world over the next few years, one might think that an investor with his pick of global opportunities would focus most of his efforts on overseas companies right now. But not so for the management team heading up Thornburg Global Opportunities (THOAX). In a recent article for MarketWatch, co-manager Brian McMahon highlighted the fact that six of the fund's top 10 holdings were U.S.-based companies. While the fund's mandate allows it to look around the globe for the best opportunities, right now only about a third of the portfolio is invested in foreign stocks.
Perhaps even more surprisingly, financials account for roughly 35% of portfolio assets. McMahon feels that the tide is turning for banks here at home and that the sector is realigning, offering some opportunities for careful investors. Stocks like Fifth Third Bancorp
As Thornburg Global Opportunities demonstrates, investment opportunities in the U.S. are still plentiful. We can still be competitive with our foreign neighbors, even as our economy struggles to get back on its feet. Even though much is made of America's diminishing influence in the global economy, the fact is that the U.S. will remain the center of the investing universe, at least for the foreseeable future. That means investors can't totally shun seemingly staid domestic stocks for more exciting fare like emerging markets.
Fortunately, that's not a problem for most folks. Surveys have shown that the average investor is typically underweighted to stocks located outside of U.S. borders. How much foreign spice you should have in your portfolio is dependent on how much of a roller coaster ride you can stand and how far away you are from retirement. If you're relatively young and have many decades of a career still ahead of you, you might want to allocate anywhere from 20%-30% of your portfolio to international stocks. If you're close to or in retirement, you might want to bump that down to around 10%-15%. Moderate investors should fall somewhere in between. When it comes to your U.S.-based equity exposure, well-diversified index funds or high-quality, actively-managed funds should form the backbone of your portfolio. Beyond that, even in this uncertain economic environment, there are still plenty of individual domestic names that have excellent chances of outpacing the rest of the market in 2010.
Where the money is
If you're looking for areas of opportunity within the domestic sphere, there are a few areas I think are poised for good things in the near future. First, take a look in the large-cap realm. Smaller stocks have dominated the scene over the past decade, and many larger, blue-chip names just haven't been rewarded. I'm betting that this corner of the market is due for at least a marginal rebound sometime soon.
Next, within that framework, two sectors that I think are going to be winners in 2010 are health care and information technology. Health-care stocks are likely to get a boost from looming reform legislation, while select tech names are likely to benefit once IT spending kicks back into gear. Major pharmaceutical names like Pfizer
The U.S. economy undoubtedly has a long, slow climb upwards ahead of it. But for investors who are willing to do a bit of research, now may be the ideal time to place your bets on those domestic companies that will be the next decade's success stories.
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Amanda Kish is the Fool's resident fund advisor for the Rule Your Retirement investment newsletter. At the time of publication, she did not own any of the funds or companies mentioned herein. Pfizer and Microsoft are Motley Fool Inside Value selections. Johnson & Johnson is a Motley Fool Income Investor selection. Motley Fool Options has recommended a diagonal call strategy on Microsoft. The Fool has a disclosure policy.