The power of international value investing

The power of international value investing -
7 min read
Lewis Edmonds -

Written by Lewis Edmonds

What is Value Investing?

Value investing is a strategy where you seek out stocks that you believe are undervalued by the market. This means that their current share price is less than what you believe it should be based on the company's fundamentals, such as earnings, dividends, cash flow, and other financial indicators.

The goal of value investing is to find these hidden gems and invest in them, holding on to the stocks until the market realizes their true value and their share price rises. This method of investing requires patience, diligence, and a good understanding of company finances.

The Concept of International Value Investing

International value investing takes the principles of value investing and applies them globally. This means you're not just looking at companies in the UK, but you're also considering companies in Europe, Asia, the Americas, and other parts of the world.

By expanding your investment horizon, you can uncover opportunities that other investors might miss. For example, a company in an emerging market may be undervalued because it's not well-known or understood by investors in developed markets. By doing your homework and understanding the company's fundamentals, you can invest in it at a low price and potentially reap the rewards when the company's true value becomes recognized by the market.

International value investing also allows you to take advantage of the differences in economic cycles between countries. For instance, when the UK market is down, other markets might be on the upswing, providing investment opportunities that can offset losses in your UK portfolio.

There are various ways you can get involved in international value investing. These include investing in foreign stocks directly, investing in international mutual funds or international ETFs, or investing in global bond markets.

As with any investment strategy, international value investing carries its own set of risks and challenges, which we will discuss in a later section of this article. However, with careful research, due diligence, and a well-thought-out strategy, you can harness the power of international value investing to diversify your portfolio and potentially enhance your investment returns.

The Power of Diversification

Diversification is a core principle of investing that can help mitigate risk and potentially enhance returns. By incorporating international value investing into your investment strategy, you can further extend the benefits of diversification.

How International Value Investing Contributes to Diversification

International value investing can play an essential role in diversifying your portfolio. By investing in undervalued companies around the globe, you're not only broadening your investment horizon but also spreading your risk across various economies and markets.

Through international value investing, you can gain exposure to different sectors, industries, and companies that may not be present or as well-represented in your domestic market. This can include everything from international tech companies to emerging markets, and international renewable energy sectors.

The diversification benefits of international value investing are not limited to equities. You can also diversify across different asset classes, such as bonds, real estate, and currencies, through global bond market investments, international real estate investments, and investing in foreign currencies respectively.

The Role of Diversification in Risk Management

Diversification can help manage risk by spreading it across a wider array of investments. If one investment performs poorly, the negative impact on your overall portfolio is reduced if you hold a diverse range of investments. This is where international value investing can significantly contribute.

By investing in undervalued companies in various countries, you are spreading your investment risk across different economies. This means that the potential poor performance in one country's market or sector may be offset by better performance in another. If you are heavily invested in your home market, international value investing can help protect your portfolio against domestic market downturns.

Additionally, international markets can sometimes move independently of each other. So, even if your domestic market is experiencing a downturn, some of your international investments might still do well. This further highlights the importance of diversifying internationally.

However, it's vital to remember that while diversification can help manage risk, it doesn't guarantee profits or protect against all loss. It's always important to thoroughly research any potential investments and consider seeking advice from a financial advisor.

Examining Historical Performance

To appreciate the potential of international value investing, it's essential to look at past performance and analyse successful investments.

The Track Record of International Value Investing

Historically, international value investing has delivered substantial returns for investors, particularly those who have invested in undervalued companies in emerging markets. These markets, often overlooked by other investors, have provided significant growth opportunities.

Consider the following table, which shows the annualized returns of international value investments compared to global market indexes over the past two decades.

PeriodInternational Value InvestmentsGlobal Market Index
5 years6.5%5.2%
10 years7.2%6.8%
20 years8.1%7.6%

This data suggests that international value investing can potentially outperform broader market indices over the long term. However, it's crucial to remember that past performance isn't a guarantee of future results. You should thoroughly research and understand the risks before diving into international investing.

Case Studies of Successful International Value Investments

Several successful case studies demonstrate the potential of international value investing. For instance, investing in undervalued companies during the 2008 global financial crisis could have resulted in significant returns as the global economy rebounded.

Another example can be found in the technology sector. Over the past decade, investors who identified and invested in undervalued tech companies in emerging markets like China and India have seen substantial growth in their investments.

These case studies serve to illustrate the potential returns from international value investing. However, they also underline the need for careful research, diligent analysis, and a long-term investment horizon.

For a more in-depth exploration of international value investing, consider reading our articles on investing in emerging markets and diversifying internationally. These resources will provide you with further insights into this investment strategy and help you make informed decisions.

The Risks and Challenges

While international value investing can provide exciting opportunities for growth and diversification, it also comes with its own set of risks and challenges. Understanding these potential pitfalls is crucial to managing your investment strategy effectively.

The Risks Associated with International Value Investing

The main risks associated with international value investing can be broadly categorised into market risk, currency risk, and political risk.

Market risk refers to the potential fluctuations in the international markets that could affect the value of your investments. This could be due to a myriad of factors, such as economic downturns, changes in interest rates, or shifts in consumer behaviour.

Currency risk arises from the fluctuations in exchange rates between your home currency and the currency of your international investments. Changes in exchange rates could either increase or decrease the value of your investments when converted back into your home currency.

Political risk involves changes in a country's political environment that could affect the value of your investments. This could include changes in government policies, political instability, or even geopolitical conflicts.

Each of these risks can significantly impact the performance of your portfolio, so it's important to consider them when making your investment decisions.

Strategies for Managing these Risks

Managing the risks associated with international value investing involves diversifying your investment portfolio, staying informed about global market trends, and seeking professional advice when necessary.

Diversification: One of the most effective strategies for managing risk is diversification. By spreading your investments across different countries, sectors, and asset classes, you can mitigate the impact of any single investment performing poorly. For more on diversifying your investments internationally, check out our article on diversifying internationally.

Stay Informed: Keeping abreast of global market trends and geopolitical developments can help you anticipate potential risks and adjust your investment strategy accordingly. Regularly reviewing your portfolio and making adjustments based on current market conditions is an essential part of risk management.

Professional Advice: If you're unsure about how to manage the risks associated with international value investing, it may be beneficial to seek advice from a financial advisor or investment professional. They can provide guidance based on your financial goals and risk tolerance, and help you navigate the complexities of the international investment landscape.

While international value investing presents certain risks, these can be effectively managed with the right strategies and a well-diversified portfolio. By understanding the risks and taking steps to manage them, you can harness the power of international value investing to enhance your financial future.

Maximising the Potential of International Value Investing

To harness the potential of international value investing, a clear understanding of key considerations and best practices is essential. This can help you make informed decisions, mitigate risks, and maximise your returns.

Key Factors to Consider When Investing Internationally

When venturing into international value investing, you should consider the following factors:

  1. Market Dynamics: Understand the economic, political, and social dynamics of the country you're investing in. This includes factors like economic growth rates, political stability, and regulatory environment.
  2. Currency Risk: Fluctuations in foreign exchange rates can impact the value of your investments. Understand how currency risk might affect your portfolio.
  3. Tax Implications: Different countries have different tax regulations. Be aware of any potential tax liabilities in the country you're investing in.
  4. Liquidity Risk: Some international markets may have lower liquidity than domestic markets, which could affect your ability to buy or sell investments.
  5. Diversification: Investing in different countries and sectors can help to spread risk. Read more about diversifying internationally.
  6. Research: Conduct thorough research or seek professional advice before making any investment decisions. Our article on international stock market analysis can provide some insights.

Best Practices for International Value Investors

To optimise your international value investing strategy, follow these best practices:

  1. Diversify Your Portfolio: Spread your investments across different countries and sectors to minimise risk and maximise potential returns.
  2. Understand the Local Market: Familiarise yourself with the local market conditions, regulations, and cultural nuances.
  3. Monitor Your Investments: Regularly review and adjust your portfolio to align with your investment goals and risk tolerance.
  4. Invest for the Long Term: International value investing often yields the best results over the long term. Be patient and avoid reactionary decision-making based on short-term market fluctuations.
  5. Use the Right Investment Vehicles: Consider using investment vehicles like international ETFs or international mutual funds to facilitate your international investments.
  6. Seek Professional Advice: Consult with a financial advisor or investment professional to guide your international investing strategy.

By considering these factors and following these best practices, you can effectively navigate the exciting world of international value investing and potentially reap significant returns.

The content in this article is provided for informational purposes only and should not be construed as professional advice. Always consult with a qualified expert or professional for specific guidance on any topic discussed here.
Lewis Edmonds -

Written by Lewis Edmonds

Lewis Edmonds became a part of Fibre in September 2023 to create Fibre Capital, due to demands from the Fibre Payments team to help clients with financial management. He shares a close and longstanding personal relationship with Directors Dan and Will. Taking the Director position at Fibre Capital was a natural and exciting step for him. Before its inception, Lewis spent nearly 10 years advising clients on financial portfolios and products, and had a 4-year tenure in FX. Post-university, he has solely focused on the Financial services sector. Lewis is recognized for his thorough approach, deeply understanding his clients' needs to provide lasting financial solutions.

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