Larger, Global Companies Shore Up Your Defense (EXI, DIA, SPY, IWM)
08 August 2007 at 10:50 am by Gary Gordon
The best offense is a… "good defense." If it holds true for sports, might it hold true for investing as well?
A snapshot of the last 6 months supports the notion that larger, safer conglomerates are more desirable in times of uncertainty. In the chart below, we can see that the U.S. mega-cap, conglomerate index, the Dow Jones Industrials Trust (DIA), has handled market turbulence better than the broader big-market benchmark, the S&P 500 SPDR Trust (SPY).
Small companies have had the hardest time, as the widening gap between the Russell 2000 Trust (IWM) and other large-cap barometers suggests. Of course, it’s not hard to see why investors might flee smaller companies for perceived safer grounds of larger, more established companies. It’s also not too difficult to see why broad U.S. economic exposure in the 500 largest companies (SPY) may be less compelling than 30 of the most well-known brands in the world… a la the Dow (DIA).
What strikes me as somewhat intriguing, however, is the ability for global investments to act as a buffer to volatility. In the past, the more "international" one traveled, the more risk one seemed to be taking on. That’s not necessarily the case anymore.
The difference between a "global" investment and an "international" investment is that the latter excludes the U.S. entirely. A global investment includes companies from anywhere in the world, including the Unites States.
The iShares S&P Global Industrials (EXI) pursues results that correspond to the capital appreciation and yield, before fees and expenses, of the S&P Global Industrials Index. This exchange-traded fund tracks a composite of about 150 world-renowned industrials/conglomerates, with some 50% in the U.S. and another 50% around the world.
So you’ll get your GE, 3M and Deere. But you will also get your Mitsubishi, Siemens and Deutsche Post. And since global companies are not constrained by earning profits in the U.S. alone, they are better situated to benefit from the current economic expansion worldwide.
Disclosure Statement: As a Registered Investment Advisor, Pacific Park Financial, Inc. may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.
