One way to gain exposure to foreign markets outside of international Mutual Funds, ETFs and ADRs are domestically traded companies that do a significant amount of their business in foreign markets. Investing in these companies allows investors to capitalize on the higher growth rates available in developing economies without the added risks of trading in a foreign exchange that lacks the transparency, consistency or legal protection that is offered in U.S. exchanges.
This strategy not only provides some downside protection in the event of a sluggish recovery, but also provides plenty of exposure to the US in the case of a more robust recovery. In recent years, companies such as Procter & Gamble (NYSE:PG), Colgate (NYSE:CL) and Wal-Mart (NYSE:WMT) are reaping benefits from global exposure, as rapid growth of their international business bolstered declining sales in the domestic U.S. market. Additionally, a broadly invested portfolio will not be as adversely affected by negative movements in any one of its component companies or countries.
Investors who foresee a sluggish recovery for our economy or declines in the value of the US dollar should consider looking for high quality, well managed, attractively-priced businesses with high foreign exposure.
Using AFG's proprietary research we have provided a list of well managed businesses, in the S&P 500, with over $1 billion market-capitalization that also have over 40% in foreign sales. All of the companies included in our list rank in the top 70th percentile of valuation attractiveness within the index and have a Management Quality score that reflects a management team that has been successful at creating wealth for its shareholders. Companies displaying these characteristics have proven through back-tests to be more likely to outperform companies with unattractive valuations and wealth-destroying management teams according to AFG research criteria.