To Calm Client Fears About International Stocks, Speak Their Language

To Calm Client Fears About International Stocks, Speak Their Language

Written by Guest Writer: Chris Shuba, Founder of Helios Quantitative Research

Market volatility is normal. And though we can’t predict the future, volatility in the coming years is a safe bet. Clients look to you, their advisor, to build investment portfolios that can help them navigate through unstable times.

Clients tend to invest in what they are familiar with. They recognize U.S.-based indices like the Dow, the Russell, Nasdaq and the S&P 500, and build their portfolios with them. Currently, U.S. investors have nearly 75% of their investments in U.S.-based assets¹. Diversification, such as exposure to international markets, is a key component to a stronger portfolio and can help protect clients against volatility. As their advisor, you can provide simple recommendations based on multi-factor data to help bridge this “international” gap in your clients’ portfolios.

If you’re not familiar with the concept of multi-factor investing, it’s quite simple. Specific investment factors— value, quality, momentum, low volatility, and size—can be used to select assets that tilt a portfolio in one direction with the goal of boosting returns. For example, a portfolio that focuses on “value” seeks to identify stocks that demonstrate a favorable price-to-earnings ratio. A focus on “quality” looks at equity return, leverage ratio, and earnings variability, while a momentum-based strategy weighs heavily on stocks that have been outperforming the market for a given period and are expected to continue in the foreseeable future. Each factor-based strategy provides specific benefits depending on the market environment at the time.

The powerful thing about introducing multi-factor investing in a client discussion is that it gives you the opportunity to compare apples to apples, making it much easier for your clients to understand not only why international equities are a valuable diversification tool, but also how multiple components in a portfolio work together to help ensure sustainable returns over the long term, even in the face of unprecedented volatility. You can start by introducing the concepts of value, quality, and momentum—all factors that are easy to explain, and that most every investor can grasp quickly. Discuss how a diversified portfolio can help create a more consistent return structure, and then use real-world data and market information to create a simple model that illustrates the 12-month implied volatility for international equities compared to something every client is familiar with: domestic large caps within the S&P 500. What the numbers show is that volatility tracks quite consistently across the two asset classes.

Source: Helios Quantitative Research


Next, discuss how the risk associated with the two asset classes is also similar, and by overweighting international equities within a U.S.-equities-based portfolio, risk is reduced because, quite simply, the client doesn’t have all eggs in one basket. At the same time, the implied volatility chart can be used to talk through how this diversification can help smooth volatility over time.

Telling this simple story can do wonders at calming client nerves, setting their expectations not only about the value of international equities and why they serve as an important diversification tool even when they are underperforming, but also about the need to protect against continued volatility within the U.S. equities space. While the value potential for U.S. equities seems high, there’s no way to predict how long that value will last. By leveraging a cost-effective, multi-factor ETF that focuses on high quality, high value international equities, your clients can effectively “dip their toes in the water” using a tool that is specifically designed to reduce the impact of volatility on their portfolio.

¹Source: Openfolio

Opinions and statements of market trends that are based on current market conditions constitute our judgment and are subject to change without notice. These views described may not be suitable for all investors. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations. Past performance is no guarantee of future results. Investment returns and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. ETF shares are bought and sold throughout the day on an exchange at market price (not NAV) through a brokerage account, and are not individually redeemed from the fund. Shares may only be redeemed directly from a fund by Authorized Participants, in very large creation/redemption units. For all products, brokerage commissions will reduce returns.

J.P. Morgan Asset Management is the marketing name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide.
 
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NBA Player Carl Landry Demonstrates the Value of Persistence in Life and Work

NBA Player Carl Landry Demonstrates the Value of Persistence in Life and Work

Written by: Jon Sabes

When you meet Carl Landry, stand-out college basketball player and nine-year NBA player, you imagine that becoming a professional basketball star was a straight forward run for the 6-foot-nine-inch power forward. 


However, when you go deeper into Carl’s background, becoming a NBA professional was less than certain and little came easily to the 33-year-old from Milwaukee:

  • He was cut from his high school team as a freshman and averaged less than ten points a game when he did play as a senior.
  • He started his college career not at Purdue, but a junior college where it was not clear he would play.
  • When he finally got to Purdue, he tore his ACL in his knee his first year and reinjured it the next year.
  • While his family held a party for him the night of the NBA draft, he slept in the Philadelphia airport after missing a flight following a workout for the 76ers.
  • In the NBA playoffs, Carl had a tooth knocked out, but came back in the same game to make a game-winning blocked shot as the Rockets beat the Utah Jazz 94-92.
     

Landry, who I interviewed on my podcast, Innovating Life with Jon Sabes (www.jonsabes.com), is a remarkable example of the value of “persistence.” In a time where technology creates the image that anything is possible at the touch of a button, persistence is an under-appreciated trait. When I spoke with Carl, I clearly saw someone for whom success has only come through a force of will that made him a NBA player, but it also made him a better player every year he played. That’s the kind of personality that has produced greatness in business as well as sports.

Carl was, in fact, drafted that night he spent in the airport. The Seattle Supersonics chose him as the 31st overall pick and then traded him to the Houston Rockets where he rode the bench for much of the first half of the season. When All-Star teammate Yao Ming was injured, he stepped in and played a key role in the Rockets astonishing 22-game winning streak (the third longest streak in NBA history). And, that season, after sitting on the bench for 33 of the first 36 games, he was named to the All-Rookie second team.

Carl was the first in his family to go to college. “I told myself that this was my ticket out, so I did everything I possibly could to be the best person in school and also on the court,” he said.

His family life in Milwaukee showed him what he didn’t want to do. “Just being honest with you, seeing some my cousins, peers, they went to work for jobs paying six, seven dollars an hour or they didn’t go to work at all and then living off welfare. I didn’t want that.”

When he was first injured, he had to contemplate the end of a career before it even got started. “When you have an ACL tear, it’s over…no more basketball,” he told me. “I said, God, give me health again and I’ll do everything I can to leave it all out on the line and be a successful individual.”

On my podcast, Carl pointed out another interesting lesson he learned in the NBA: Not doing things just to fit in.

“Fitting in was easy,” he said. “Doing everything that everybody else does was easy. If I stood out in some type of way, I’m going to have different results. I’m going to have stand-out results.”


That’s called the “Law of Contrast” and it produces that exact effect of changing the outcomes that everyone else is experiencing.  Carl is smart, he recognized that differences make a difference, and doing whatever it takes is what is required to make real, meaningful differences.

Every off-season for the last 11 years, he has run a camp for kids in Milwaukee where he tells youth his story of hard work and persistence. “I always tell the kids to apply themselves and always be persistent,” he said. “If you dream, apply yourself and be persistent. With hard work, man, the sky’s the limit.”

When Carl says the sky’s the limit he means it.  He is smart to recognize that it’s important to dream big, because if we don’t – we may be selling ourselves short. “You have to dream bigger than your mind could ever imagine,” he said. “I wanted a nice house. I wanted a nice car. I said, and I got all of that. So, what do I do, do I stop now? Maybe I didn’t dream big enough.” That’s a big statement coming from a kid who grew up to be the first in his family to graduate college and go on to be not only a top NBA basketball start, but a good businessman, father and someone who gives back to the community.

I’m convinced that in whatever he takes on as a basketball player or in his post-hoops career, Carl Landry is not going to stop getting better at whatever he does, and in the process of doing so, make the world a better place.

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GWG Holdings, Inc. (Nasdaq:GWGH) the parent company of GWG Life, is a financial services company committed to transforming the life insurance industry through disruptive and i ... Click for full bio