Why Use Global Investing to Reduce Risk?
There are three primary types of investment management that are based on where companies are headquartered. Their descriptions are pretty basic, but there is a big variation in results.
- Domestic asset management
- International asset management
- Global asset management
Domestic Asset Management
In general, this refers to investment in companies that are headquartered in the U.S. However, many of these companies derive a high percentage of their revenue and profit from outside the U.S. So, in this case, a domestic company could also be a global company. Coca Cola is an example of a company that derives a high percentage of its revenue from outside the U.S.
International Asset Management
In general, this refers to investment in companies that are headquartered outside the U.S. However, many of these companies, for example several major car companies, derive a high percentage of their revenue and profit from inside the U.S. So, in this case, an international company could also be a domestic company.
Global Asset Management
In general, this refers to investment in companies that are headquartered anywhere in the world. These companies derive revenue and profit inside and outside the U.S.
The Global Economy
Many companies mirror the global economy by marketing their goods and services in hundreds of countries.
This connection means economic conditions in the U.S. impact economic conditions in Europe and vice versa. What happens in China has a major impact on prices at your local Costco.
The Best Companies
The bottom-line is the fastest growing companies in a particular industry are not necessarily headquartered in the U.S. They could be located in a number of different countries around the globe.
Based on the above descriptions there is no reason to limit investing to domestic companies. By definition we are already global investors when we invest in companies that derive significant revenues and income from outside the U.S.
It pays to pick the best companies regardless of where they are headquartered. It is more important to know where they do business than it is to know where they are headquartered.
Even though economies around the globe are linked, it is possible to reduce risk by investing in multiple countries and the companies that do business in those countries.
For example, it is possible for some countries to experience high growth when other countries are experiencing slow growth.
GlidePath’s investment strategy is based on global investment principles. We do not believe it is possible to invest in the best companies and limit their source of revenue to the U.S. Almost, by definition, the best companies will also be global companies.
We invest in multiple asset classes in several countries to maximize diversification and reduce risk.