Transcript Beyond Our Borders: Why investors should consider

Beyond Our Borders
Why investors should consider
international markets
IIC-WHYINTL-PPT-1P 10/14
Invesco Distributors , Inc.
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Important information
The risks of investing in securities of foreign issuers,
including emerging market issuers, can include fluctuations
in foreign currencies, political and economic instability, and
foreign taxation issues.
The performance of an investment concentrated in issuers
of a certain region or country is expected to be closely tied
to conditions within that region and to be more volatile than
more geographically diversified investments.
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Important information
The opinions expressed are those of the authors, are based on current
market conditions and are subject to change without notice. These
opinions may differ from those of other Invesco investment
professionals.
All material presented is compiled from sources believed to be reliable
and current, but accuracy cannot be guaranteed. This is not to be
construed as an offer to buy or sell any financial instruments and
should not be relied upon as the sole factor in an investment-making
decision.
Past performance cannot guarantee comparable future results.
Diversification does not guarantee a profit or eliminate the risk of loss.
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61% of mutual fund
owners do not own a
non-US or global fund.
Source: ICI Research Report: “Profile of Mutual Fund Shareholders, 2013” February 2014
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Three reasons to invest internationally
1
Opportunity and
Demographics
Global populations — and economies —
are growing rapidly as a generation of more
affluent consumers is emerging
2
Performance
International markets have attractive historical
performance
3
Familiarity
Many international companies have
popular US brands
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1. Opportunity and
Demographics
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More than half the
world’s stock market
is outside the US.
As of June 30, 2014. Source: Based on The MSCI All Country World Index, an index considered representative of
stock markets of developed and emerging markets. An investment cannot be made directly into an index.
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A growing majority of the world’s population,
gross domestic products (GDP) and market
capitalization is outside the US
Population1 Breakdown 2014
Developed
(ex US)
10%
US
5%
Emerging
85%
95%
of the world’s Population
comes from outside the US
GDP1 Breakdown in 2014
Market Cap2 in 2014
Developed
(ex US)
38%
Emerging
39%
Emerging
11%
Developed
(ex US)
41%
US
48%
US
23%
77%
of the world’s GDP comes
from outside the US
52%
of the world’s market cap is
outside the US
1 GDP and population figures are projections and are as of Apr. 2014.
2 Market cap figures are based on MSCI AC World Index and are as of June 30, 2014.
Sources: MSCI Inc., International Monetary Fund, World Economic Outlook Database, Apr. 2014. The MSCI All Country World Index is an index
considered representative of stock markets of developed and emerging markets. An investment cannot be made directly into an index.
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Emerging markets are more than just Brazil,
Russia, India and China (the BRICs)
Today, emerging
markets, as
represented by the
MSCI Emerging
Markets Index,
covers over 800
securities across
23 markets,
representing
approximately
11% of world
market cap.
Americas
Brazil, Chile, Colombia, Mexico, Peru
Europe, Middle
East & Africa
Czech Republic, Egypt, Greece, Hungary, Poland, Qatar, Russia, South Africa,
Turkey, United Arab Emirates
Asia
China, India, Indonesia, Korea, Malaysia, Philippines, Taiwan, Thailand
Source: MSCI as of March 31, 2014. For illustrative purposes only. BRICS are Brazil, Russia, India, China. Qatar and United Arab Emirates will be
reclassified as Emerging Markets from Frontier Markets in May 2014. The MSCI Emerging Market ND Index is an unmanaged index considered
representative of developing countries. An investment cannot be made directly in an index. For complete MSCI disclosure , see slide 26.
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The global middle
class* is expected
to more than double
by 2030.
* Global Middle Class defined as households with daily expenditures between US$ 10 and US$ 100 per person
Source: Kharas, H. (2010), “The Emerging Middle Class in Developing Countries”, Wolfensohn center for
Development at the Brookings Institution, March 15, 2010. Actual results may differ from current expectations.
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Emerging markets may account for a large part
of the global middle class in 2030
Many Emerging Market Populations May See Their Annual Incomes Rise Meaningfully Over the Next 16 Years
Real Per Capita GDP
$36,000
$32,000
Middle Class
Threshold
$28,000
$24,000
$20,000
$16,000
$12,000
$8,000
$4,000
Projected 2014 Real Per Capita GDP
Turkey
Thailand
Taiwan
South Korea
Saudi Arabia
Russia
Poland
Peru
Mexico
Malaysia
Hungary
Greece
Czech Republic
Colombia
China
Chile
Brazil
$0
Projected 2030 Real Per Capita GDP
Middle class defined as people with an annual income threshold of between $4,000 and $17,000, which in fact, hews closely
to the $10 per day benchmark at the low end of the income range. (All the benchmarks are adjusted for U.S. prices using
an economic leveler known as purchasing power parity , or PPP.)
Source: United States Department of Agriculture: Economic Research Service. Estimates as of Dec 2013. Real per capita gross domestic product
(GDP) is the measure of a country’s total GDP divided by number of people in the country. Baseline figures are in 2005 dollars. Purchasing
Power Parity is an economic theory that estimates the amount of adjustment needed on the exchange rate between countries in order for the
exchange to be equivalent to each currency's purchasing power.
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Global consumers are growing by the billions
The Global Middle Class is Expected to Grow Exponentially Over the Next 20 Years
200
4.9B
people
180
160
% change
140
3.2B
people
80
60
3 billion
more global
consumers in the
world by 2030.
120
100
Potentially there
may be
40
20
0
1.8B
people
2009
2020
Projected
2030
Projected
Source: Kharas, H. (2010), “The Emerging Middle Class in Developing Countries”, Wolfensohn center for Development at the Brookings
Institution, March 15, 2010. Actual results may differ from current expectations.
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In 2030, Asia is projected to have the largest
middle class
Approximately 10x larger than the US
Projected Size of Middle Class by 2030 — by Region
North America
0.38B
people
Europe
0.68B
people
Asia
3.20B
people
Each figure represents 0.1 billion people.
Source: Kharas, H. (2010), “The Emerging Middle Class in Developing Countries”, Wolfensohn center for Development at the Brookings
Institution, March 15, 2010. Actual results may differ from current expectations.
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2. Performance
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Over the last 10 years,
the US has never been
the world’s top equity
market.
Source: Lipper Inc. Index performance is not illustrative of performance from any Invesco fund. Past performance
cannot guarantee comparable future results. Each country is represented by its respective MSCI index. An
investment cannot be made directly in an index. For complete MSCI disclosure, see slide 28.
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Despite conventional wisdom, US performance
has not dominated
In the Past 10 Years, the US has Ranked as a Top 10 Country Only Four Times
Based on annual returns for top developed countries over the past 10 years
Norway
8 times
Canada
7 times
US
4 times
Denmark
8 times
Israel
5 times
Singapore
7 times
Australia
9 times
New Zealand
6 times
Data as of June 30, 2014.
Source: Lipper Inc. Index performance is not illustrative of performance from any Invesco fund. Past performance cannot guarantee comparable
future results. Each country is represented by its respective MSCI index. An investment cannot be made directly in an index. For complete MSCI
disclosure , see slide 26.
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Which will outperform next?
The US has
outperformed
international
markets in recent
years meaning a
reversion may be
coming soon
International Market Returns Relative to Domestic Market Returns
Represented by MSCI EAFE and S&P 500, 12/31/1975–06/30/2014
60%
Relative Performance
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
1976
1982
1988
International Underperformed
1994
2000
2006
2012
International Outperformed
Data as of June 30, 2014.
Source: Source: Lipper Inc. Index performance is not illustrative of performance from any Invesco fund. Past performance cannot guarantee
comparable future results. International Markets are represented by the MSCI EAFE and the US market is represented by the S&P 500. The
MSCI EAFE® Index is an unmanaged index considered representative of stocks of Europe, Australasia and the Far East. Results assume
reinvestment of dividends. The S&P 500 Index is an unmanaged index considered representative of the US stock market. An investment cannot
be made directly in an index. For complete MSCI disclosure , see slide 26.
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Additional Information
Actual Calendar Year Index Returns
Year
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
S&P 500
MSCI EAFE
23.93
-7.16
6.58
18.60
32.50
-4.92
21.55
22.56
6.27
31.73
18.66
5.25
16.56
31.63
-3.11
30.40
7.61
10.06
1.31
2.54
0.18
32.62
4.75
22.58
-2.28
-1.86
23.69
7.38
56.16
69.44
24.63
28.27
10.54
-23.45
12.13
-12.17
32.56
7.78
Year
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
June 30, 2014
S&P 500
MSCI EAFE
37.53
22.95
33.35
28.60
21.03
-9.10
-11.88
-22.09
28.67
10.87
4.91
15.78
5.49
-36.99
26.47
15.08
2.09
15.99
32.39
7.14
11.21
6.05
1.78
20.00
26.96
-14.17
-21.44
-15.94
38.59
20.25
13.54
26.34
11.17
-43.38
31.78
7.75
-12.14
17.32
22.78
4.78
Data as of June 30, 2014.
Source: Source: Lipper Inc. Index performance is not illustrative of performance from any Invesco fund. Past performance cannot guarantee
comparable future results. International Markets are represented by the MSCI EAFE and the US market is represented by the S&P 500. The
MSCI EAFE® Index is an unmanaged index considered representative of stocks of Europe, Australasia and the Far East. Results assume
reinvestment of dividends. The S&P 500 Index is an unmanaged index considered representative of the US stock market. An investment cannot
be made directly in an index. For complete MSCI disclosure , see slide 25.
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International stocks
are currently trading
at a 35% discount to
US stocks.1
1 Excluding Emerging Markets
Source: Invesco, Compustat and Factset, as of June 30, 2014.
Past performance is not a guarantee of future results.
An investment cannot be made directly in an index.
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International stocks continue to trade at a
discount
International
stocks are
currently
trading at an
approximate
Based on Price-to-Book Ratios, International Markets Have Been
Inexpensive Relative to Domestic Markets
80
International trading at a premium to the US
60
40
35%
%
20
0
discount to
the US
-20
-40
-60 International
Jan-75
Jan-80
-34.62%
trading at a discount to the US
Jan-85
Jan-90
Jan-95
Jan-00
Jan-05
Jan-10
Jun-14
MSCI EAFE Index Price-to-Book Relative to MSCI US Index Price-to-Book
Avg International/US Line
Source: Invesco, Compustat and MSCI, as of June 30, 2014. The MSCI EAFE® Index is an unmanaged index considered
representative of stocks of Europe, Australasia and the Far East. The MSCI USA Index ND is an unmanaged index
considered representative of U.S. stocks. The index is computed using the net return, which withholds applicable taxes
for non-resident investors. Results assume reinvestment of dividends. For complete MSCI disclosure , see slide 30. Past
performance is not a guarantee of future results. An investment cannot be made directly in an index. The price-to-book
(P/B) ratio also know as the price-equity ratio, is a measure of how expensive a stock is. It is equal to a stocks current
price divided by the latest quarter’s book value per share.
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3. Familiarity
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In 2013 international
companies made up
74% of the Fortune
Global 500.1
1 Based on 2013 Fortune Global 500 (Rankings are based on Revenue)
Sources: Fortune.com, 2013 Global 500, July 2013
Several of the world’s largest companies and
well-known brands are outside the US
8 of the 10 Largest Companies in the World are Headquartered
Outside the US.
Industry Groups
6 of the 10 largest electronic companies in the
world are headquartered outside the US.
8 of the 10 largest automakers are
headquartered outside the US.
7 of the 10 largest energy companies are
headquartered outside the US.
Based on 2013 Fortune Global 500 (Rankings are based on revenue)
Sources: Fortune.com, 2013 Global 500, July 2013
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Largest Company in
Industry Group
Samsung
Electronics
Toyota Motors
Royal
Dutch
Shell
Many brands you use every day are produced by
non-US companies1
Company
Country
L’Oréal
France
adidas AG
Germany
Sony
Japan
Royal Philips
Electronics
Netherlands
Samsung
South Korea
Nestlé
Switzerland
GlaxoSmithKline
United Kingdom
1 As of September 2014
These sample brands are not all inclusive. The companies mentioned are for illustrative purposes, do not necessarily represent specific fund
holdings and should not be considered recommendations to purchase or sell a particular security.
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Reality check
Although more than half of the world’s stock market is
outside the US, only 16% of stock mutual fund assets are
invested in international equities.2
Global Stock Market Capitalization 20141
Mutual Fund Assets Broken-out by Asset Class
17%
48%
52%
83%
US Market
International Market
US AUM
International AUM
1 Market capitalization figures based on MSCI All Country World Index as of June 30, 2014.
2 Source: SI Simfund MF, as of June 30, 2014. Includes long-term open-end mutual fund assets only
(excludes fund of funds) as of June 30, 2014.
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Beyond our borders
Why investors should consider international markets
for long-term wealth creation
1
Opportunity and
Demographics
More than half of the worlds stock market is
outside the US.1 The global middle class is
growing exponentially and could be a key driver
of future global growth.2
2
Performance
The US has never been ranked the best
performing developed market in the past 10
years.3
3
Familiarity
Many US household brands come from
international companies.
1 Market capitalization figures based on MSCI All Country World Index as of June 30, 2014.
2 Source: Kharas, H. (2010), “The Emerging Middle Class in Developing Countries”, Wolfensohn center for Development at Brookings
Institution, March 15, 2010. Actual results may differ from current expectations.
3 Source: Lipper Inc. Index performance is not illustrative of performance from any Invesco fund. Past performance cannot guarantee
comparable future results.
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Important information
Neither MSCI nor any other party involved in or related to compiling, computing or
creating the MSCI data makes any express or implied warranties or representations
with respect to such data (or the results to be obtained by the use thereof), and all such
parties hereby expressly disclaim all warranties of originality, accuracy, completeness,
merchantability or fitness for a particular purpose with respect to any of such data.
Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any
third party involved in or related to compiling, computing or creating the data have any
liability for any direct, indirect, special, punitive, consequential or any other damages
(including lost profits) even if notified of the possibility of such damages. No further
distribution or dissemination of the MSCI data is permitted without MSCI’s express
written consent.
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Thank you
This material is for educational
purposes only and does not contend
to address the financial objectives,
situation or specific needs of any
individual investor. It is not a
solicitation or an offer to buy or sell
any security or investment product
For US use only
Invesco.com/us
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Invesco Distributors, Inc.
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