Entry Points | Time to Reconsider International Equities

Mike McCune, Boston Partners Portfolio Analyst, discusses in Boston Partners latest Entry Points video.

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International Equities: The Opportunities and Benefits

Considering the unrestrained growth of domestic technology- and internet-related names between 2014 and 2021, the deceleration in the U.S. equity markets in 2022 should come as no surprise. Among the small subset of the world’s largest tech names, for instance, it’s a lot easier to grow market caps for companies going from $1 billion to $2 billion. But growth becomes exponentially more difficult when valuations exceed $1 trillion.

Entry Points

International equities have been overshadowed by U.S. stocks in recent memory. At the same time, the current concentration in tech is now creating a compelling entry point for investors who recognize the diversification benefits of allocating to both domestic and international equities over a long-term time horizon.

Catalysts in Play:

The concentration of tech in the U.S. has already influenced global portfolios. As of June 30, 2022, the weight of technology and technology-related stocks in the MSCI World Index exceeded 28%, up from approximately 10% in 2006.

Meanwhile, developed market exposures within the same index don’t even represent a third of the total weighting. The MSCI EAFE stocks have shrunk to under 30% from over 45% during the same time period. Passive investors are thus underweight to several acute catalysts still taking form:

Global Supply/Demand Imbalance | The pandemic, coupled with the war in Ukraine exacerbated the global supply/demand imbalances that were already affecting global commodity prices. Allocations to active international strategies can hedge investors concerned about volatility related to these imbalances.

Metals and Mining Hotbed | The universe of international stocks also offers more opportunities to invest in metals and mining companies or machinery and equipment manufacturers who sell into these verticals. In fact, there were 4x as many companies in these segments across the MSCI World (ex-USA) index than there in the MSCI USA index as of September. This underscores the breadth of the opportunity set available to active international strategies.

Currency Tailwind | Investors in the U.S. also benefit as the Federal Reserve tightens monetary policy. Of course, this reinforces the strength of the U.S. dollar, but more importantly it supports free cash flow yields among European operators exporting into global markets.

Active Strategy: Boston Partners has been investing in global and international equities since 2004 and offers a number of different approaches to access these geographies. Today, an “all-cap” approach can offer flexibility for disciplined managers to expand their investment universe and scan up and down the market-cap spectrum to construct a dynamic portfolio of undervalued names most likely to outperform against the current backdrop.

For a full transcript, please click here.

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Statistics and other information taken from the following sources:

Definitions:

The MSCI USA Index is designed to measure the performance of the large and mid cap segments of the US market. With 627 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in the US. These indexes are unmanaged and investors cannot invest directly in these indexes.

The MSCI World ex USA Index captures large and mid cap representation across 22 of 23 Developed Markets (DM) countries*– excluding the United States. With 890 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. These indexes are unmanaged and investors cannot invest directly in these indexes.

US Federal Reserve: The Federal Reserve System is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a series of financial panics led to the desire for central control of the monetary system in order to alleviate financial crises.

Market Cap is the market price of an entire company.

Boston Partners Global Investors, Inc. (“Boston Partners”) is an Investment Adviser registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940. Registration does not imply a certain level of skill or training. Boston Partners is an indirect, wholly owned subsidiary of ORIX Corporation of Japan (“ORIX”). Boston Partners updated its firm description as of November 2018 to reflect changes in its divisional structure. Boston Partners is comprised of two divisions, Boston Partners and Weiss, Peck & Greer Partners (“WPG”).

Index returns are provided for comparison purposes only to show a broad-based index of securities, as the indices do not have costs, fees, or other expenses associated with their performance. In addition, securities held in either index may not be similar to securities held in the firm’s accounts. The trademarks and service marks referenced herein are the property of their respective owners. Third party data providers make no warranties or representations of any kind relating to the accuracy, completeness or timeliness of the data and have no liability for damages of any kind relating to the use of such data. Past performance is not an indication of future results. This document is not an offering of securities nor is it intended to provide investment advice. It is intended for information purposes only.

The views expressed in this video reflect those of Boston Partners as of the date of this video. Any such views are subject to change at any time based on market and other conditions and Boston Partners disclaims any responsibility to update such views. Discussions of market returns and trends are not intended to be a forecast of future events or returns.

Estimates reflect subjective judgments and assumptions. There can be no assurance that developments will transpire as forecasted and that the estimates are accurate.

Equity securities are volatile and can decline significantly in response to broad market and economic conditions.

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Matthew Donovan

Equity Analyst

Mr. Donovan holds a B.A. in Economics from the University of Pennsylvania.

Mr. Donovan is an equity analyst with Boston Partners. Mr. Donovan is focusing his analytical efforts on Emerging Markets equities. Prior to this, he was a Research Analyst for the Boston Partners Sustainability and Engagement Team. He was responsible for original ESG/Sustainability research on companies held in Boston Partners’ portfolios. Mr. Donovan holds a B.A. in Economics from the University of Pennsylvania. He has one year of experience.

John Zhao

Equity Analyst

Mr. Zhao holds a Bachelor of Arts degree from the Richard Ivey School of Business at Western University and an MBA from Harvard Business School. He has six years of industry experience.

Mr. Zhao is an emerging markets industry analyst with Boston Partners specializing in fundamental research of stocks held in our Emerging Markets Equity products. Prior to his role at Boston Partners, Mr. Zhao worked as a Private Equity Associate in Salt Lake City and an Investment Banking Associate in Hong Kong.

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Jonah Frank

Equity Analyst

Mr. Frank was a student at Boston University where he earned a B.S. degree in business administration with a concentration in finance and management information systems.

Mr. Frank is an equity research analyst with Boston Partners. Mr. Frank is focusing his analytical efforts on equities within a variety of cyclical industries.

Edward Stansky

Equity Analyst

Mr. Stansky holds a B.S. degree in economics from Duke University and a M.B.A. from NYU’s Stern School of Business. He has six years of investment experience.

Mr. Stansky is an equity research analyst with Boston Partners and has generalist coverage responsibilities. Prior to this role, he worked as a high yield and leveraged loan analyst at DDJ Capital and as an investment banking analyst in debt advisory at BofA Merrill Lynch.

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Marlon Thompson

Equity Trading Assistant

Mr. Thompson holds a B.S. degree in finance from Boston College. He has ten years of industry experience.

Mr. Thompson is an equity trading assistant for Boston Partners. Prior to assuming this role, he worked as a portfolio operations analyst. Before joining the firm, Mr. Thompson held several roles including Vice President of Operations at Benefit Street Partners LLC and positions at International Fund Services (IFS) and Pioneer Investments.

Kara Pattipati, CFA

Relationship Manager

Ms. Pattipati holds an M.A. in International Relations from the University of St. Andrews. She holds the Chartered Financial Analyst® designation. Ms. Pattipati has ten years of industry experience.

Ms. Pattipati is a member of the Relationship Management team at Boston Partners. She works with many of our key domestic and international clients in a client service and relationship manager capacity. Prior to joining Boston Partners in 2016, she was a business development associate at Geode Capital Management.

Elizabeth Sheerin

Relationship Manager

Ms. Sheerin holds a B.S. degree in business management from Babson College. Ms. Sheerin has thirteen years of industry experience

Ms. Sheerin is a member of the Relationship Management team at Boston Partners and she joined this team in 2011.  She works with many of our key domestic and international clients in a client service and relationship manager capacity. Prior to joining our firm, she was a Client Service Representative at Putnam Investments. She also held several financial services related internships including working for Merrill Lynch Global Wealth Management and State Street Global Advisors.

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