"The Myth of International Investing"

This is the title of an article from the Daily Reckoning that was rerun on ETF Investor.

The basic idea is that the world has changed and buying any old foreign stock or fund will not give as much diversification as it used to. The article cites that investors need to look at foreign small cap to have a better chance of diversification.

I first touched on the concept, sort of, last November. The globalization of the worlds economy has caused the correlation between the US and certain serviced based economies to get tighter. It is for this reason, and I have been writing about this for a long time here, that I am very underweight western Europe and very overweight commodity based markets. The article made no mention about commodity based markets but my observations have lead me to believe my idea is valid, at a minimum, but I could be wrong. This is also why I am a big believer emerging markets as well.

As a recap, I think of commodity based, non emerging markets as being Australia, New Zealand, Canada and Norway. There are also several emerging markets that are commodity based like South Africa, Brazil, Chile, Peru and a few others.

For the way I structure portfolios, the first priority is not trying to capture a quick trade but instead to maintain exposure to an equity market that has a low correlation to the US market. I think that over the next 12 months (maybe longer) places like Canada and Norway have a chance to have better returns than the US but as a US based manager with US based clients, the US is by far the largest country weight. The commodity countries rely on, um, well, commodity prices. I do not want to over leverage client accounts to commodities but I do want the exposure. Hopefully that makes sense.