Building an International Stock Portfolio

However, for reasons covered in my recent article on international bonds, it’s often difficult for US clients to access such accounts. For most practical purposes, you’ll be looking at Switzerland.

Although minimums are higher than you often find in the US, you get something no US advisor can offer – a diversified portfolio of asset classes in a private Swiss bank – all without locking yourself into any one path for any length of time.

For the most part, a Swiss portfolio for American clients consists of a mix of bonds, equities, and “alternative” assets that might include certain funds, precious metals, and options.

But the core is usually bonds and equities.

Today, we’ll talk about the stock side of things.

Unlike in the US, most Swiss advisors don’t rely on a lot of funds. Foreign funds (i.e., any fund – mutual, ETF, hedge, etc. – domiciled outside the US) can be a compliance headache unless they’re held in an IRA.

Rather, international asset managers will custom-build a portfolio of direct stock holdings. Not only does this avoid the regulatory hassle noted above, but it saves you the ongoing cost of the fund itself.

Much of the time, the stocks fall into one or more of the following buckets:

#1: European blue chips.

Large, established companies listed across the continent — consumer staples, healthcare, energy, industrials, and banks are the usual suspects. Quite a few European firms pay out more of their profits as dividends than their US counterparts, which can be a big part of their appeal for some clients.

#2: Swiss companies.

This is often the anchor of a Swiss-managed portfolio, although perhaps not for the reasons you might think. Switzerland is a small country and any company that wants to go big needs to look overseas. For that reason, most of the larger players that make up the Swiss piece of the puzzle are really a play on diversification. You get earnings generated from emerging and developed markets with the side benefit of earning in Swiss francs along the way.

#3: Dividend stocks.

Plenty of countries have their own version of firms with decades-long streaks of steady or rising dividends. European and Japanese markets are full of them, and unlike bond coupons, those payments tend to grow over time. In a world where the safest bonds aren’t yielding all that much, these stocks are doing some of that traditional work.

#4: Selective exposure elsewhere.

Sometimes Southeast Asia, occasionally Japan, rarely more. When portfolios venture beyond Europe and Switzerland, it’s usually into developed or near-developed Asian markets — Singapore is popular, for example. Most of the time, Swiss advisors will steer clear of places with poor governance. That’s more a realm for speculators, not so much for conservative investors.

So you might be wondering what gets one company picked over another. Most Swiss advisors are conservative in nature and focus on the fundamentals. That includes…

Strong corporate governance. Companies where the boards hold management to account, where the accounting is clean, and where minority shareholders are treated fairly. In today’s world, that might sound naïve, but there are still such companies out there.

Good liquidity. The stock should be easy to buy and easy to sell without a large spread.

An established dividend track record. This depends on the client’s strategy for sure. But when clients ask for a portfolio focused more on conservative wealth preservation vs the latest meme stock, we’ll often see a focus on dividend-paying plays.

Another currency. Nearly all clients consider international asset management for the currency diversification piece – stocks denominated in francs, euros, or another currency not so tied to the US economy.

Now, at this point, you might be asking yourself: couldn’t you just buy the same companies through your US brokerage?

The answer is sometimes yes, but often with key drawbacks.

Some of the largest companies list on more than one market (i.e., a dual listing) – their home market and in the US. But you generally don’t have that many options. There are also American Depositary Receipts or ADRs, which allow you to trade essentially by proxy through a US bank. You can also hold US funds that hold foreign investments.

In some cases, certain US brokers will let you access certain foreign markets directly. This gets you closer to the real thing – you’d be buying the actual stock on the foreign exchange, in the local currency.

But notice what hasn’t changed: your money still sits with a US broker, under US jurisdiction, subject to the US system.

And that’s the trick with all of these options. Dual listings, ADRs, US funds, even direct market access through a US broker – they all share a common weakness. Your assets remain inside the US financial system.

If the whole point is diversification away from that system, these tools can’t take you there.

An international managed account allows you to build a position that’s separate from all that. In most cases, for most clients, it represents an “insurance policy” of sorts – 10%, 20%, or 30% of their total portfolio.

Held in banks with strong liquidity, limited outside lending, and little or no exposure to the US market.

P.S. If you’re looking to build an international portfolio and want the help of a firm with decades of experience helping US clients do exactly that, feel free to get in touch.