Thursday, April 20, 2006

Foreign Stocks Are In, and So Is Indexing

 
Foreign stocks are soaring and Americans are pouring money into them. But although overseas equities have captured investors' fancy before, there's a twist this time: More investors are embracing passive, index-style investing, ignoring the long-held belief that active managers can beat indexers by uncovering bargains in inefficient foreign markets.

More from Wharton:

"In February...investors poured nearly $19 billion into foreign-stock mutual funds, compared to $8.4 billion for U.S. stock funds....

...American investors have also grown enamored of indexers, which now hold about 15% of assets invested in foreign-stock funds, up from about 5% in 2001, according to AMG Data Services. 'People want diversification at the cheapest cost,' notes Wharton finance professor Jeremy Siegel, who talks about the latest economic developments in a podcast included in this issue......It probably will continue.

'Siegel says the typical American investor should have 40% of his or her equity portfolio in foreign stocks....you don't want to confine yourself to one country....I really advise broad diversification.'

40% seems a bit high, especially in today's foreign equity markets, but the point is valid non-the-less.
Posted by Trade Monkey :: 11:40 AM :: 0 comments Perma-Link

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