Well, many US investors focus only on domestic markets.
If they invest internationally, they want more flexibility to adjust how much they allocate to develop versus emerging markets.
Now excluding the US from portfolios helps correct some of the imbalances caused by US stocks dominating global indexes and also American investor holdings.
Investors need to keep in mind the unique risks that come with international investing, including currency fluctuations, political instability, geographic risks which don't exist necessarily in domestic US stock indexes.
Well, joining me this morning to weigh in is Salvatore Esposito, head of the ETF products at Za's Investment Management.
Thank you so much for joining me.
Well, we are looking at mostly mixed trading for the major US stock averages, and we are seeing a pullback in big tech.
But when it comes to investing in overseas markets, especially international developed markets, what do you pay attention to?
Yeah, I think first and foremost you've got to look at the company, not just the index, right?
I think.
Our company's primarily been a research.
We started as a research firm over 50 years ago.
Zach's Investment Management is we started about 30 years ago focusing on companies with durable earnings and consistent earnings estimate looking at earnings estimate revisions.
So for National stocks.
This is our first foray into the international space.
We're looking at specifics companies, companies that are quality we consider quality, companies that have good durable earnings growth, good momentum, and we also look at earnings estimate revisions as well.
Yeah, so what factors do you consider when deciding how much to allocate to developed markets?
Yeah, I mean, we're, we are primarily, like I said, we focus on mostly domestic portfolios.
This is our first international portfolio.
We feel that there is a place for international allocations in.
I think a lot of investors in the US kind of have, you know, because domestic has outperformed international for pretty much the last 15 years, and this is the first year that it's really kind of outperforming.
You need to look a little bit further down the road and take a look at the company rather than the index.
Yeah, when we take a step back and look at the broader market performance here in the US, we know that currency as well as political risks did come into play here, but we are still at elevated levels for the major US stock averages.
So when you're looking at unique risks of international investing, what do you pay attention to?
Yeah, so we're looking at, we are looking at.
The country, right, I think primarily we're focused on developed markets, so we're not really looking at emerging markets in this particular fund I'm speaking of.
So we're looking at country, but we're also looking at the company and their longevity as well, right?
We're not putting investing in companies that may be fly by night companies.
They're companies that have been around for a long time with.
Quality earnings over long periods of time, and I'm curious, how do you assess the relative value and growth potential of international stocks.
Yeah, so I mean, obviously right now if you look at the S&P 500, we're trading probably around 30 times earnings, right?
I think there are positions inside of the international index that if you take a look.
They're relatively way more attractive, right?
Even companies that have had great performance over the last few years in the international space, they are still way more attractive from a price to earnings ratio, and that makes it even more attractive to investment.
Yeah, and finally, I want to ask you, how does your active strategy differ from passive when it comes to international?
Sure, yes, so we have both a quantitative and a qualitative process we use.
So we do have a portfolio team that is looking at the at the country risks, looking at the different companies inside of the benchmark while using our quantitative process that focuses on, it's a multi-factor process that focuses on earnings estimate revisions, also company earnings and momentum.
So we have kind of a yin and yang to the whole thing where we have our team actually making trades throughout the week and also quarterly as well.
OK, well thank you so much for joining me here at the New York Stock Exchange today and thank you so much for weighing in.
Thank you, my pleasure.
