There is currently a strong case to be made for US investors to combat their “home country bias” and invest globally, according to new research from Morningstar Indexes. In fact, there are several compelling reasons for investors to consider non-US stocks for portfolio diversification as well as investment opportunity, according to Morningstar Indexes Strategist Dan Lefkovitz.
“The US share of the Morningstar Global Markets Index is roughly 60%, high by historical standards and far out of proportion to its 25% share of the global economy,” said Lefkovitz. “The US equity market looks high-priced, top-heavy and low-yielding compared to global counterparts. The debt ceiling, a long run of strength for the US dollar, and potential recession are further reasons it makes sense to maintain global exposure.”
Lefkovitz goes on to describe a US equity market that has dominated global equities for the 15 years since the global financial crisis of 2007-2009, primarily driven by a handful of technology-oriented companies like Apple, Microsoft, Amazon, Alphabet, Nvidia and Tesla.
“After years of US market dominance, many investors have forgotten the benefits of global exposure. But markets are cyclical, currencies fluctuate, and valuation differentials can create opportunity. International stocks are looking exceptionally cheap relative to US stocks right now,” said Lefkovitz. “And dividend yields are also far higher in equity markets outside the US.”
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