World View

Florida Trend, Oct 2007 by Miracle, Barbara

As the U.S. economy grew 3.2% last year, the economy of China grew 10.7%. India's expanded 9.2%; Kazakhstan's, 10.6%; Vietnam's, 8.2%; and Mexico's, 4.8%. Growth in many overseas markets is outpacing the U.S. economy, which is expected to slow rather than expand next year. "The outsized growth over the next 15 to 20 years is probably coming from outside the country," says Jeff Saut, chief investment strategist for St. Petersburg-based Raymond James.

Keith Dubauskas, vice president at Citi Private Bank in Palm Beach, echoes that belief. "Half the opportunity set is outside the U.S.," he says.

Florida wealth managers interviewed by FLORIDA TREND are recommending 20% or more of an average stock portfolio be invested internationally. For an individual investor, that typically means mutual funds, exchange traded funds (ETFs) or foreign stocks that trade in U.S. markets through American Depositary Receipts, or ADRs.

Many Florida investment managers go beyond the vehicles readily available in the U.S., however, and look for small companies in niche markets in developing countries.

Boca Raton investment manager Robert Levitt spends much of his time traveling to investigate opportunities from the Ukraine to Brazil. "Our bet is that developing economies are going to grow faster than the OECD economies," he says.

Interest is particularly high for companies that cater to the burgeoning middle class in developing nations. Also, there's a need for roads, sewers, communications networks and other facilities. Jim Grinney, chief investment officer for Florida at Northern Trust, says, "I think that one thing you could use with almost any country is the whole infrastructure idea."

Jeff Saut

Chief investment strategist

Raymond James St. Petersburg

Recommended international allocation: 20%

International strategy: Overlay a diverse international fund with exchange traded funds for specific countries.

Emerging markets he likes:

Thailand, Malaysia, Indonesia, Brazil, Peru, Kazakhstan and Mexico. One emerging market of particular interest is Vietnam because, like China, it has continued to build a middle class, says Saut. But it's a difficult country to invest in because the purchase of Vietnamese securities must be settled in only one day (compared to three in the U.S.).

Markets he's concerned about: France and Italy - "I think there is a problem. It has nothing to do with politics." They both have low birth rates. The two countries are importing workers but not assimilating them well. China - "There's going to be a banking accident," says Saut. "I don't know when it is going to happen." Russia - "We've taken all of our money off the table in Russia. I don't like what Putin is doing over there." Japan - "Japan is virtually shutting down," he says, voicing concern about the labor force and Japan's unwillingness to import workers.

Jim Grinney

Senior vice president, Florida

Northern Trust Bank North Palm Beach

Assets under management: $30 billion (Florida)

Minimum investment: $1 million

Recommended international allocation: 19% to 22% (18% to 20% in developed countries and 1% to 2% in emerging markets)

Sectors he likes: Infrastructure - In emerging countries like India, there's a need for roads and other infrastructure. But even in developed countries, infrastructure needs to be replaced. Grinney likes General Electric and Dutch steel company Arcelor Mittal. Consumer products - Companies that offer consumer products to countries such as China, where middle-class incomes are growing. McDonald's and Pepsi are two examples.

Broad market exposure: Grinney uses Northern Trust's proprietary international funds as well as the iShares MSCI Emerging Markets. Index (EEM) and the IShares MSCI EAFE Index (EFA).

Andrew Mehalko

Chief investment officer

GenSpring Family (an affiliate of SunTrust) Palm Beach

Assets under management: $10.5 billion

Minimum investment: $10 million

Recommended international allocation: "A little over 20%"

Markets he likes: Europe - Companies large and small are shedding non-core businesses and outsourcing labor to Eastern Europe, says Mehalko.

Russia and the former Soviet countries - Mehalko says GenSpring has a small exposure there, but, "There are underlying industries or sectors that no one is paying attention to." Instead of oil and energy, he is looking at companies that focus on Russia's basic infrastructure needs - things like rebuilding power grids. He's also looking at financial companies that could benefit from Russia's mortgage industry, which is in its infancy, and the more established banking system in places like Kazakhstan. Mehalko says he prefers small, private companies in Russia.

Japan - Four years ago, GenSpring targeted 40 to 60 companies that were trading below their net cash value. "Since we've been invested there, we've doubled our money," says Mehalko, adding that the overall Japanese market did nothing over the same period. Going forward, Mehalko likes Japan and Korea.

For the long term: China - Too much capital is flowing into the market right now, says Mehalko, who adds that GenSpring has "a little bit of exposure" there. But, he says, "Long term, it's a great opportunity."