New Blend Portfolio positions: Profiting outside of U.S. stocks
Opportunities outside the U.S. and an undervalued commodity
Hello Antagonist members,
Welcome to the monthly issue of our Blend Portfolio.
Today, I’m further diversifying our portfolio by adding two non-U.S. positions and an undervalued commodity. I’ll also review the performance of our current holdings.
Here’s what’s on tap:
An undervalued, emerging market
An undervalued, developed market
A surging commodity that’s still selling at a discount
Review of existing Blend Portfolio positions
Recommendation #1: An undervalued, emerging market
Whether you’re looking to diversify your portfolio or searching for high-growth opportunities, emerging markets are appealing for a number of reasons:
Diversification: Emerging markets help mitigate risk by giving you assets that behave differently from those in developed markets.
High growth potential: Emerging markets account for nearly 80% of global economic growth, offering the potential for lucrative returns.
Attractive valuations: You have the opportunity to buy stocks at prices lower than their intrinsic worth.
Currency appreciation: Gains from a local currency strengthening against the U.S. dollar can boost investment returns.
Commodity exposure: You can gain access to natural resources and commodities prevalent in emerging markets.
Geopolitical changes and reforms: Political reforms can create a conducive environment for investments.
Portfolio yield enhancement: Emerging markets often provide higher dividend yields compared to developed markets.
Globalization and market integration: Access and integration with the global economy is increasing among many emerging market countries.
Some analysts are even forecasting that emerging markets will overtake the U.S. market by 2030:
Goldman Sachs expects emerging market stock capitalization to become larger than that of the U.S. by 2030.
The bank predicts EM’s share of the global equity market will rise to 35% in 2030, 47% in 2050, and 55% in 2075.
The current share is ~27%.
The United States’ share, meanwhile, is expected to decline from 42% in 2022 to 35% in 2030, 27% in 2050, and just 22% in 2075.
Source: Grit Capital
Risk factors of emerging markets
While emerging markets offer unique advantages over developed markets, they also come with risks that you may not be used to accounting for:
Political (in)stability: Political instability can lead to economic instability, which can severely hurt investment returns.
A country’s currency volatility: Currency volatility can make it difficult to predict investment returns in emerging markets.
A country’s market liquidity: Market liquidity refers to the ease with which assets can be bought and sold. Liquidity can vary significantly across countries in emerging markets. The same is true for transparency and information availability.
Given these enhanced risks, be sure to limit the amount that you allocate to emerging markets. If you’re just starting out, begin with a very small percentage. Consider 5% of your portfolio or less. You can always scale up later.
The simplest way to invest in emerging markets
The iShares MSCI Emerging Markets ETF (EEM) tracks large- and mid-cap emerging market equities. With one trade, you can gain exposure to 800+ emerging market stocks.
Of course, like any ETF, EEM gives you a basket of stocks that you have no control over. While you’ll be invested in some fantastic businesses and global markets, you’ll also hold positions that you likely wouldn’t buy on your own. Still, if you’re short on time and/or don’t want to research individual countries, EEM is a great choice.
As a premium member of The Antagonist, however, I do this research for you. While I think EEM is a solid investment, I also believe we can do better by honing in on specific countries.
That’s what we’re going to do with our first recommendation:
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