Looking back on now the third calendar year in a row during which the S&P 500 outperformed the rest of the world, many U.S. investors are perhaps wondering why they should venture outside of their home market. Add recent headlines from abroad, including geopolitical conflicts, Europe’s refugee crisis, softening global growth, and the recent slide in China’s markets, and you start to see investors clicking the heels of their ruby red slippers, hoping for a return home to Kansas. While it may be true that there is no place like home, there continues to be a place for international equities in investors’ portfolios.
Investors tend to gravitate toward their home markets, where they can find companies that advertise their favorite brands and sell familiar products. This “home bias” can often result in portfolios that are heavily concentrated in U.S. equities and underweight to international equities, which may be viewed as riskier investments.