Foreign Investment Offers Risks, Rewards

The last decade has not been a good one for investors who put their money overseas expecting returns above those available in the U.S., the chief investment officer for Tacoma-based Frank Russell Co. said Thursday.

Surging domestic markets have outpaced those just about anywhere else in the world, said Randy Lert.

But, he added, longer horizons indicate foreign and domestic investments will perform alike over time.

And foreign markets often move in opposition to those in the U.S., Lert said. When values on Wall Street sink, prices will move upward somewhere else.

Lert, who was in Spokane to address the Gonzaga University Dean’s Business Forum, noted that the U.S. market now represents less than half the value of all capital worldwide. In 1970, the figure was closer to two-thirds.

He said mutual funds managed by Russell keep about 20 percent of their total $28 billion in assets over seas. About 15 percent of that is invested in young markets emerging on every continent.

He also said pension advisers and other money managers understand the value of international diversification. About 20 percent of pension fund assets are overseas, he said.

Lert said Japan is an extreme example of the potential and pitfalls of foreign investing.

Its markets counterbalance those in the U.S. better than any others. Lert said that was an advantage during the 1980s, but has been a negative for several years, particularly as the Japanese have struggled to solve structural problems, like those in its banking system.

Japan’s recent woes have been heightened by the turmoil in Southeast Asian economies, Lert said.

With money moving around the globe in search of the best returns, he said, investors are less tolerant of poor public management.

But emerging markets, if volatile, should not be avoided, Lert said. Investors should look for a mutual fund that spreads its money across several markets to avoid the consequences of a nosedive in one.

“These markets are not well-connected to one another,” he said.

Whether investing domestically or overseas, Lert stressed that individuals must not attempt to time markets.

Studies show most individuals consistently buy stocks or mutual funds at high prices and sell when they are low. The result is returns below those they would have earned by simply leaving their money in place.

“They damage themselves,” he said.

, DataTimes