Chapter 1: Is it time to diversify investments internationally?
Is it time to start looking outside the U.S.? This is Motley Fool Hidden Gems Investing. Welcome to Motley Fool Hidden Gems Investing. I'm John Quast. I'm joined today by Fool contributors, Rachel Warren and Matt Frankel. This is Memorial Day, if you're listening to this, but we're taping a couple of days early. For that reason, we're not going with the news of the day or something like that.
We are diving into our mailbag here today in all three segments, Let's just get right into it. We have a question here from one of our listeners who just goes by S. It says, Dear Fools, the S&P 500 and a broad-based foreign index for investment portfolios is often considered good rules of thumbs for many investors. The S&P, however, has become increasingly concentrated in the Magnificent Seven.
For investors looking to diversify and add more individual countries to their portfolios, such as Japan or India, for example, how should investors approach investing in more concentrated foreign investments? Now, before we get into this first question here, I want to point out that the way it's worded makes it sound like there are two opposing approaches.
You can either invest in the Magnificent Seven or you can invest internationally, as in, you can do one or both, but you can't do both at the same time. That's not necessarily true, right, Rachel? This dichotomy doesn't necessarily exist.
Yeah, that's absolutely the case. I mean, that's very much been my personal approach as an investor. So my portfolio is quite heavily weighted in the U.S. mega cap tech companies. And actually, because of that, there is really a built-in international diversification there. I mean, the MAG7 function essentially as global economic conduits. They're not just domestic enterprises.
And actually, they generate a lot of their revenue outside the U.S. So just to put some numbers to that, Meta and Apple derive about 62% and 57% of their respective revenues from foreign markets, which might surprise some people. Alphabet pulls in about 51% of its revenue from international markets. So not everyone has to take that approach, of course.
But for me personally, when I'm picking stocks, I've held these companies for many years. I plan to do so for many years to come. I view it as very much participating in their international expansion. You know, you're capturing a lot of the tailwinds from AI, from cloud computing rollouts and other really exciting tech sector events just by investing in these major businesses.
I think it's so easy to overlook the fact that a large part of U.S.
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Chapter 2: How can investors effectively diversify into Japan and India?
stock market performance has been driven by the fact that these U.S.-based companies have gone global. Matt, how about you? Do you own any U.S. companies that generate substantial revenue from overseas?
A few. I am not as Mag7 heavy as Rachel is. My Mag7 investments are Alphabet, which technically is not through my wife's portfolio, but one big pot, and Amazon, which I would probably consider to be the least international of the Mag7 in terms of revenue. The majority of their revenue is domestic. Some of my largest investments, like General Motors, Berkshire Hathaway, Realty Income,
They're mostly domestic. MercadoLibre is a top three investment for me. That's one exception, but it's not a Mag7 company. I have a few other of my top 10 investments have substantial international exposure. Digital Realty Trust is a global data center operator. Pinterest, over 80% of its users are international. Disney is a surprisingly international company.
I'm a little more underweight international in terms of individual stocks.
Thank you both for that. Let's go ahead now and dive more into the meat of the question here regarding international diversification, specifically mentioning Japan and India in their question. Rachel, there are simple ways to diversify into those markets.
Yeah. I mean, there's a few different ways to do this.
So, for example, if you're looking at specific foreign markets like Japan or India, you can look at exchange-traded funds, ETFs that focus on specific regions or countries so that you can really access a whole basket of foreign companies without the operational hurdles of investing in international stocks, or maybe you don't want to just invest in individual stocks.
You want to go for the basket approach. So, Just to give a couple examples, there's funds that track the premier localized benchmarks like Japan's Nikkei 225. That's actually a price-weighted index of 225 blue-chip giants like Toyota and Sony that are listed on the Tokyo Stock Exchange. There's also India's Nifty 50. There's ETFs that follow that. India's Nifty 50 is a market cap-weighted index.
It tracks the 50 largest, most well-capitalized companies on their national stock. stock exchange. But there's also BlackRock, for example, ETFs that offer targeted vehicles. There's their iShares MSCI Japan ETF. That's ticker EWJ. And then there's ticker INDY, which is the iShares India 50 ETF that actually tracks the Nifty 50 that I was talking about.
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