Global Investing and Portfolio Diversification: A Wide Range of Opportunity and Potential
~ Monday, April 29, 2024 Blog Post ~
In this day and age, investing is made affordable and easier. Since I’m not married and do not have my own family, my goal is to build towards a much better future for myself. Thus, I invest based on my values and interests to reach my aspirations and goals.
I am interested in learning more about how to make my hard-earned money work for me. I also want to discover more about how to mitigate investment losses and risks and maximize my investments.
Earlier this April 2024, I attended Mr. Shaun Jamieson’s webinar. He is Vice President at Product Strategist, Global Allocation at BlackRock. Headquartered in New York City, BlackRock is the world’s biggest asset manager helmed by chief executive officer, Laurence Douglas Fink. This multinational investment firm’s clients are companies, governments, individual investors, and foundations through more than 80 offices globally.
Mr. Jamieson is an investment management certificate holder. In the webinar in which he is the resource person, he enabled me to learn about the concept of global investing and its benefits. Additionally, Mr. Jamieson tackled the importance and advantages of investment portfolio diversification.
GLOBAL INVESTING’S BENEFITS
I decided to take part in the global investing webinar because I believe this activity can aid me in preparing myself for a much better financial future. I have long believed that my life can be more improved through investing in the global markets in which I have been successful as I have always kept myself updated with the latest international trends.
As a global investing professional, Mr. Jamieson helped me make informed decisions and unlock global investing’s full potential via the ideas he dispensed in the recent informative event. Through the BlackRock investment professional’s insights, he provided me with unlimited confidence when it comes to navigating the international investment landscape.
Mr. Jamieson emphasized the following 12 global investing tenets:
1. Investors benefit from learning more about and selecting from the abundant global investment opportunities.
Global investing allows me to invest in alternative assets, equities, fixed income securities, and other international investment options available in the market for my long-term financial growth.
I can avail of products such as the global allocation feeder fund offered by major multinational investment management corporations like BlackRock. Mr. Jamieson advised that investors like myself should ensure that the funds or products I am looking to invest in align with the current trends in the global market.
However, this situation is where the great relationships that asset management companies have with their investors come into play. Investors and their asset management firms should talk about what is going on in the investment portfolios and explain where those views are. Clients like myself should understand what they are investing on.
2. It is easy to invest globally today, thanks to the many advancements that facilitate it.
Mr. Jamieson cited that developments in communications and technology have made it more effortless for investors to pour their funds beyond geographic borders. He advised using the Internet as the best resource and tool for researching on global investment opportunities. The Internet facilitates learning about the key drivers that are happening in all the various different markets.
From a resource perspective, investors like myself could spend just an entire day online finding bits and pieces coming from various different sites. Mr. Jamieson recommended not just making sure that I am up-to-date on the news and on those news flows. He said I can look at what’s coming through and say, “Oh okay, now I understand why this portfolio is overweight in Japan,” or “I understand why it is avoiding some other sectors.”
3. Global investing involves variety.
As global investing is significant for me to reach my other life goals, this activity allows me to pour my hard-earned investment funds beyond my country and on various types of companies and assets. Indeed, differences in geographic borders, investment assets, and business organizations define a diversified investment portfolio built in these markets.
Investors who diversify out of local investments can potentially enhance return and lower volatility, per Mr. Jamieson. Furthermore, I can take on lower risks when it comes to investing or otherwise, depending on my investment risk appetite.
4. Long-term global investing pays substantial rewards.
Global investors may have high or fat chances of losing money if they invest globally. Mr. Jamieson affirmed that global investing is not a passive process. It is complex and takes more time, effort, and research. Additionally, global investing requires comprehension of the different asset classes, like real estate, stocks, and bonds.
Global investing involves risk assessment and making informed decisions and is geared towards my long-term objectives which could be 20 to 40 years in the future. Mr. Jamieson relayed that risk-taking global investors can benefit from higher returns or yields for their invested funds.
5. Global investing can be investors’ ally in their battle against inflation.
Mr. Jamieson highlighted that inflation is the silent persisting force gradually eroding the purchasing power of people’s money over time. Short-term inflation pertains to price increase, with consumers’ wallets feeling the pinch. Yet, inflation’s long-term effect is what is truly important for it can considerably diminish one’s hard-earned money’s value.
To address this problem, Mr. Jamieson highly recommended global investing, in which one’s funds can grow faster than inflation, whether these assets are real estate, bonds, stocks, or other investment assets. With global investing as my aim, I can witness my funds outpacing the rising costs, taking quite a leap, and getting shielded against inflation by preventing it from nibbling away my funds’ value.
6. By following global investing tips from experts, an investor can reach his goals.
Mr. Jamieson advised me to invest wisely and remain informed. He recommended understanding market trends, inflaton rates, and economic indicators. The BlackRock professional also suggested me to remember my time horizon and that investing is not a sprint but a marathon. Indeed, the gap matters: The wider the gap between my investment returns and the inflation rate, the less impact inflation has on my overall wealth.
7. Think long-term.
Global Investing really is similar to planting seeds for the future. According to Mr. Jamieson, it involves an investor’s goals spanning decades such as financial independence, retirement, or building a legacy. These personal targets demand more than a savings account can offer.
8. Investment portfolio diversification is very important with different asset classes included in the collection.
I can mitigate risks by spreading my investment funds across various asset classes. Mr. Jamieson pointed out that I can take advantage of all the market offers by ensuring I am getting adequate risk-appropriate diversification. He cited that the key is in creating a diverse portfolio.
Mr. Jamieson defined the basic concept of an investment portfolio, which is a collection of assets like bonds and stocks within an investor’s investment account. Making the portfolio diverse means making it constitute various assets. Moreover, Mr. Jamieson pointed out that every asset has its own unique risk and return profile.
He relayed that the opportunity cost is tremendous for investors who have been focused solely on cash. They miss out on the opportunities that other parts of the market provide. Mr. Jamieson said that investors who want to be more than just savers are at risk as they hold on to cash too long and do not start to participate in the markets ahead of time.
As cash falls, the fixed income returns may climb and outperform it. Therefore, being able to be in that diversified portfolio during those periods of time are very important. Furthermore, Mr. Jamieson remarked that investors in the money markets who involve themselves in minimal risk face trade-offs in their conservative investment approach.
As a fundamental principle and investment strategy, diversification in an investment portfolio may reduce volatility. Mr. Jamieson cited that the broader an investor gets with that strategy, the better it is for his risk-return profile in the long run.
Different asset classes zig, while others zag. This inverse relationship between stocks and bonds is important to notice as different assets often move in different directions. Every asset class has their own unique risk and return profile. Furthermore, even within these asset classes, there could be a great dispersion of returns on a year-to-year, month-to-month, or even week-to-week basis. Return rankings change dramatically.
Diversification cannot eliminate the risks of investing. Nevertheless, being aware of this strategy illustrates why investing across a variety of assets can help. For instance, Mr. Jamieson remarked that if an investor is solely invested in Chinese equities, 2020 was a great year for him. He might be tempted to stay in that asset class going forward.
But in 2021 and the following years, Chinese equity saw a dramatic reversal, underperforming and wiping out any gain investors may have received from their strong 2020 performance. Throughout the table Mr. Jamieson used in his presentation, similar trends can be seen across all asset classes, reinforcing just how challenging it can be to count on consistent returns when an investor focuses on a single asset class.
So, by combining assets with that different risk-and-return profile within a single portfolio, investors can leverage the counter-movements of these assets to balance the overall risk. This strategy aims to stabilize the portfolio by offsetting the risks associated with individual asset classes, and ultimately looking to reduce the total risk and create a more resilient investment portfolio.
9. Embrace a more international perspective by investing globally with a diverse portfolio.
When making my investment decisions, Mr. Jamieson advised that I should move beyond a singular market focus. He cited diversification leads to a significant increase in my investment returns. This recommended investment strategy also contributes to a reduction in the volatility of my portfolio, thereby lowering my overall investment risk.
Global diversification is beneficial. This strategic approach to portfolio management lets me tap into a broader range of trends and sectors and potentially enhancing returns while mitigating risks. Indeed, sometimes, when it’s raining in the Philippines, the sun is coming out in the United States.
Mr. Jamieson affirmed that some investors prefer to stay solely within their own markets. Nevertheless, global investing is recommended. Mr. Jamieson relayed that the United States is probably the only one equity market in the world with the built-in diversification to support that strategy.
Global investors who invest in global stocks, as represented by MSCI All Country World Index, benefit because the United States is profuse with sector diversification. The MSCI All Country World Index is a stock index tracking international equity-market performance. It comprises almost 3,000 companies from 23 developed countries and 24 emerging markets.
Furthermore, global stocks like those in the United States have many healthcare and information technology names. The exposure of investment portfolios consisting them is not limited to real estate, financials, and industrial sectors.
Meanwhile, the MSCI Philippines Index, which is a basket of 14 or 18 Philippine Stock Exchange-listed stocks gauging the performance of the large and mid-cap segments of the Philippine market, covers approximately 85 percent of the Philippines equity universe. This stock market index is developed and monitored by MSCI Incorporated, a global provider of investment decision support tools.
Investors who stick to the MSCI Philippines Index are disadvantaged with “concentration risk,” per Mr. Jamieson. He explained that this risk translates to the fact that, if something goes wrong in one of the industries in the Philippines, that harm can cause a significant drag on investment returns. Examples of concentration risks are a issues in the Philippine banking system or a collapse in the local office rental prices.
10. Invest in various stocks.
According to Mr. Jamieson, when an investor invests in individual stocks, he is exposed to both market risk and company risk. While market risk — that is, the risk of the S&P 500 or similar index — has usually been rewarded with return, company risk has been more unpredictable, which is why 37 percent of individual stocks lost money over the last five years, while only 0.1 percent of diversified investments lost money over the same time frame.
Mr. Jamieson remarked that some people are willing to accept a high likelihood of modest returns for the slim possibility of achieving substantial gains. This phenomenon is often referred to as the “lottery effect,” a mindset which explains why some investors might concentrate their investments in individual stocks or pull their resources into the latest trending startup or investment craze.
Hence, the allure of potentially large returns can sometimes cloud judgement leading to decisions that may not align with the best chance of investment success, per Mr. Jamieson. He pointed out that this practice is known as “stock picking,” which can be a challenging strategy to execute successfully at the level of individual stocks.
Mr. Jamieson shared that there was a nearly 40 percent chance that any given stock an investor would choose would have resulted in a loss. Contrast that with investing in a diversified portfolio through vehicles such as a mutual fund, and this proved to be much safer, with less than a percent — only 0.1 percent of such funds experiencing losses over the same time span.
The stark contrast highlights the risk associated with stock picking and underscores the benefits of diversification in mitigating investment risk and improving the likelihood of positive returns.
11. Global investors benefit from long-term trends in different industries.
My investment portfolio, when exposed not only to my country and also with global stocks incorporated in it, allows me to enjoy the advantages of information technology and artificial intelligence (AI) spaces and other long-term trends. For instance, there is a surging demand for medical services and technology due to the growing aging population in the West. The healthcare sector speaks to this trend.
Indeed, investing globally on a diverse portfolio enables investors who invest in stock markets other than those in their countries to easily benefit from the long-term trends in diverse sectors.
Mr. Jamieson relayed that the global investing megatrends are healthcare and information technology sectors. These are the areas investors like and have liked for quite a long time within the global allocation strategy.
He also mentioned that the other long-term trends involve how AI is impacting information technology directly and how this technological advancement is going to impact a number of other companies. Mr. Jamieson explained that the important question is what the connection between these and other sectors are and how they play out.
He cited that not having that exposure at this juncture to that AI story can be detrimental, given where the technology is travelling through. Additionally, the BlackRock global investing expert mentioned that healthcare is a long-term story and his team has been looking at it for a very long time as demographics are not going to change.
Mr. Jamieson affirmed that the aging population worldwide is going to be looking for healthcare services, medical devices, and new medical devices. He cited that this fact makes the intersection of healthcare and AI and exciting area. Mr. Jamieson pointed out the usage of robotics in surgeries and these elements need to be looked at in a broad and more diversified portfolio. He advised me to pick stocks across the globe basically in order to really benefit from those themes.
I asked Mr. Jamieson what the future trends in global investing are besides AI, healthcare, longevity, and space-based economy which I gathered from a recent Bloomberg report. He confirmed that surely healthcare is definitely one. The BlackRock professional also mentioned reshoring which is impactful for China and is one of the big knock-on effects from both COVID and the increased geopolitical tensions in the Asian country and the United States.
Mr. Jamieson relayed that many American companies have been looking to bring back their supply chains from China and that is seen going into places like India, Vietnam, and Mexico. The BlackRock global investment savant said there is a lot that comes from that as a thematic. Another future trend in global investing is the difference within the consumer space, which involves the the difference between goods and service demand. Mr. Jamieson said that if consumers are looking at inflation levels, goods inflation is falling off. He said that services inflation is picking up, which makes sense if things are ultimately costing consumers less over time.
Mr. Jamieson pointed out that consumers have got more money to spend on services. Thus, he asked where the way that investors can invest is that talks to that theme. Mr. Jamieson remarked that AI, healthcare, reshoring, and consumer have a number of sub-themes sitting within it and that there are different ways to plan. He cited that these are the things they at BlackRock are looking at for a shorter or more tactical view over time and longer time.
12. Conservative investors benefit from diversification.
As a conservative investor, I learned from Mr. Jamieson that diversification is the key to participating in the global markets without taking on too much risk. He mentioned that going into the S&P 500 is probably not diversified enough. The BlackRock investment professional cited that they definitely want to ensure that any strategy that they put together has that diversification of not just a sector but also a country, so those risks are balanced.
Indeed, such type of investing is by moderating that risk while providing a strong level of return. Mr. Jamieson remarked that the more diversified the portfolio is, the better it is for a conservative investor like myself who does not want to take on very high levels of risk.
Since I want to take a slightly more conservative approach, diversification would be the number one thing that I should be looking for. Therefore, I ensure that my investment portfolio has that level of diversification within it.
INVESTMENT PORTFOLIO DIVERSIFICATION
As a global investor, my overarching goal is to achieve a smoother investment journey with the potential for consistent returns over time. Investment portfolio diversification can aid me in attaining my clear objective.
Based on Mr. Jamieson’s discussion, diversification is about managing risk wisely and shields an investor against risk or the likelihood of himself losing his money. Furthermore, it enables him to reduce the impact of any single asset’s poor performance by spreading his investments across various assets.
Mr. Jamieson enlightened me that assets do not always move in sync, which is known as correlation. When stocks go up, bonds might go down and vice versa. Mr. Jamieson added that risk and return are directly correlated. With higher potential to grow, there is also a higher potential to lose as well.
Mr. Jamieson remarked that investment portfolio diversification capitalizes on these differences. An investor needs to figure out the balancing act between bonds and stocks. The latter offers high potential returns that come with extra volatility. Meanwhile, bonds are more stable, though they yield lower returns. Mr. Jamieson said that balancing both minimizes the extremes.
The BlackRock professional advised that building up diversification in an investor’s investment portfolio is important and must be achieved. He affirmed that cash has become very attractive for risk-averse savers. However, diversifying out of cash is recommended. After all, although cash rates may be attractive again, the opportunity cost is tremendous.
In Mr. Jamieson’s presentation, he showed graphs that involve the various asset classes. They include money markets, Asian credit, investment grade, emerging market (EM) equity, EM debt, high yield, developed equities, and US equity. These asset classes can be included in an investor’s global investment portfolio.
According to Mr. Jamieson, the opportunities for those who are into global investing are fantastic. He remarked that investors like myself are at a really exciting point in the year. The BlackRock professional pointed out that there is a lot of potential out there within the global markets.
Mr. Jamieson highly recommended me as a global investor to get involved beyond borders and move in various different countries, asset classes, and sectors. He affirmed that this potential is outstanding. Mr. Jamieson concluded the webinar citing that this time is the best in considering making that move towards investing globally, broadening my views, and working with my asset management partner to look at how I would build further.
5 KEY INVESTMENT DISCIPLINES
In closing the webinar, Mr. Jamieson offered me with the following useful insights regarding what I should be doing with my hard-earned money:
A. I should limit my losses.
Restricting big losses is the real key to investing success. As returns are needed to break even, I should remember Mr. Warren Buffett’s golden nuggets. The investment expert gained renown for citing that not losing money is investing’s first rule, while the second is that I should not forget this first key principle.
Indeed, I should win more by losing less and protecting the downside. Mr. Jamieson advised to understand investment loss’s math.
As the losses grow larger, the size of the returns needed to recover increases at an even faster pace. With individual securities, it is very possible to see these large drops in value, but it is much less likely in a diversified portfolio.
B. I should have a diversified portfolio with a large amount of holdings.
In this recommended scenario, it is very unlikely that any one specific holding would be able to make or break my collection of investment assets. All of these holdings work together, per Mr. Jamieson.
C. I should understand what I am investing in.
Mr. Jamieson advised that new global investors should know what they are investing in, the structure and areas where to have diversification in the asset class, and in the country and sectors that are within there.
Additionally, he mentioned that if an investor is new to global investing, it is important to conduct a lot of research before making that decision. The latter should also make sure he feels comfortable in what is being sold and that it is an appropriate risk-and-return level for himself.
Mr. Jamieson remarked that it is obviously very important for new global investors to know what is going on within that portfolio that they are looking at investing in.
D. I should stay invested for the long-term.
Mr. Jamieson cited that the amount of returns that I could get from following this investing tenet is astounding.
E. I should leverage my asset management company’s knowledge.
According to Mr. Jamieson, individual investors may not necessarily be able to get immediate access to a wealth of information out there about global investing. Hence, he suggested getting more helpful information from investors’ asset management partners.
Indeed, I should not let uncertainty — which investors like myself and corporates usually do not like — hold me back when taking that first step towards global investing.
I should allow funds such as the Global Allocation Feeder Fund hold my hand as I navigate through these global markets. Similar to BlackRock, ATRAM Asset Management is an asset and fund management industry leader in the Philippines. This firm allows investors to embark on their global investment journey with confidence.
About BlackRock’s Global Allocation Team
Mr. Jamieson is with BlackRock, Incorporated. As the world’s largest asset management company, BlackRock has US$10 trillion worth of assets under management as of 2024. It involves fixed income and its team is engaged with macroeconomic research. They look at what is going on within the markets as a whole, conduct fundamental analysis, look at companies, and research different sectors.
BlackRock’s Global Allocation Team performs quantitative strategies. They look at how they implement investment ideas and put them into their strategies. BlackRock’s fundamental strategists do bottom-up research organized primarily through sectors and industries. Every position that they think about putting into any of their strategies is thoroughly researched. The position has been hand-selected, and then, with the work of BlackRock’s quantitative strategies team, it is optimized.
BlackRock’s Global Allocation Team ensures that investors are gaining the correct exposure to companies, countries, and sectors that they like by being in the right asset class and size, and being aware of the risk that each position brings to the strategy as a whole.
Moreover, through the BlackRock investment team’s unconstrained approach, clients have the ability to find attractive investment opportunities globally and across asset classes, benefiting from all of those aspects of diversification.
BlackRock invests in assorted types of asset classes. They comprise cash equivalents, securities, non-US credit, and non-US sovereign debt. Furthermore, BlackRock invests in US credit, US TIPS, US treasuries and agencies, precious metals, emerging market stocks, Japanese stocks, devlop Asia ex Japan stocks, developed European stocks, and North American stocks.
BlackRock’s single strategy helps investors achieve diversification since managing all of the investment variables is immensely challenging for a single investor. This asset management giant lets clients gain access to markets and overcome this hurdle to achieving the level of flexibility and diversification for individual investors. BlackRock’s broader diversified strategy eases investors’ worries.
Moreover, many markets require a long and complicated account opening procedure. Access to bonds for an individual investor can be challenging as well, depending on how much an investor have to invest or what type of bonds he is looking for. So looking at a strategy which has all of this built in and has this unconstrained exposure is obviously very helpful.
The ATRAM Global Allocation Feeder Fund:
1. Offers a comprehensive solution, investing across a full spectrum of global assets
while prioritizing risk management;
2. Leverages BlackRock’s flagship multi-asset fund;
3. Can tap into the growth potential of the global economy with one-third less risk than funds that are a little more volatile;
4. Has the average allocation of 60% equities and 40% fixed income.
The 60/40 equities-fixed income split is the traditional “gold standard” split of allocation. It is a long-standing and academically-backed investment approach both for beginners and experts.
Indeed, investors should not “put all eggs in one basket.” It is good to have both a mix of stocks and bonds. This investment strategy is tried and tested across a long span of time.
The ATRAM Global Allocation Feeder Fund is the only local fund in the Philippines that gives this sort of “golden ratio” or good balance, which makes it unique in that space versus other global investment options. This special feature is compared to the S&P 500, which is composed of the Magnificent 7 or major US technology companies. This stock market index is technology stocks-heavy and a little volatile and prone to some pretty strong swings;
5. Is tailored for investors seeking growth potential while mitigating the short to medium-term risk with the fixed income part;
6. Offers a more personalized approach to an investor’s global portfolio management.
The ATRAM Global Allocation Feeder Fund is for investors in their 40s looking for something to optimize growth, a younger investor looking to diversify, or older investors looking for a bit of stability;
7. Is managed by the BlackRock team;
8. Offers more protection from today’s downswings;
9. Has true global diversification versus other global options.
The ATRAM Global Allocation Feeder Fund is not just purely on the S&P 500, but globally as well or other global investment options;
10. Is available on the Maya Funds platform and the ATRAM Prime platform;
11. Has a minimum investment of is ₱1,000;
12. Makes investing accessible as possible; and
13. Enables cost-averaging, encourages investing regularly, and makes investing a habit.
References:
https://www.bloomberg.com/features/how-to-invest-in-future-trends-2023/
https://en.wikipedia.org/wiki/Larry_Fink
https://www.indianwealthmanagement.in/services-2/global-investment-opportunities/
https://investingintheweb.com/brokers/blackrock-assets-under-management/
https://www.investopedia.com/terms/d/downside-protection.asp
https://www.investopedia.com/terms/m/msci-acwi.asp
https://www.msci.com/documents/10199/c633e646-9b30-493e-9588-12c08a659acb
