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Why investors should look beyond ASX shares for outsized gains

There are a lot of great performing shares on the ASX. But investors would be wise not to limit themselves to the local markets.
The post Why investors should look beyond ASX shares for outsized gains appeared first on Motley Fool Australia. –

World globe sitting on top of share price chart

Yesterday I penned an article noting 3 reasons the S&P/ASX 200 Index (ASX: XJO) is likely to join US indexes to hit its own new record highs.

Although the ASX 200 slipped yesterday, and is down 0.5% in late morning trading today, that positive outlook certainly remains true.

However, while there are plenty of great performing shares on the ASX you should have in your portfolio, today I want to stress the importance of looking beyond the local markets. Specifically, to US markets.

Why you shouldn’t limit yourself to ASX shares

Let’s look at the relative performance of the Aussie and US markets first.

Over the past 12 months the ASX 200 is down 3.4%. Over 5 years it’s up 27.2%.

Over the past 12 months the S&P 500 Index (INDEXSP: .INX) is up 15.1%. Over 5 years it’s up 73.7%.

The tech-heavy Nasdaq Composite (INDEXNASDAQ: .IXIC) has performed even better. Over the past 12 months the Nasdaq is up 38.9%. Over 5 years it’s up 135.9%.

Have another look at those returns. A picture may paint a thousand words, but these figures speak for themselves.

Tremendous benefits

Scott Phillips, the Motley Fool’s chief investment officer in Australia, has had great success investing in ASX shares. But he’s also a strong proponent of investing internationally, particularly in US share markets.

Here’s an excerpt from an article he wrote for his investment service, Share Advisor, in April 2019:

Investing internationally delivers tremendous portfolio diversification benefits and brings a world of opportunities to your investment doorstep…

The fact of the matter is — some of the very best companies on planet Earth aren’t listed on the ASX. The Australian share market is a minnow on the global stage. Our share market represents a tiny 2% of global stock markets. If you exclude our two big miners and four large banks, that falls to almost 1%…

By investing part of your funds internationally you not only increase the opportunity to find the big winners of tomorrow, but you also reduce the risks that are specific to Australia. Risks that could seriously damage your portfolio.

Most online brokers these days offer you relatively inexpensive (and sometimes free) access to trading US shares.

You should be aware of the additional risks, though, chiefly currency fluctuations. If you invest in US shares and the Aussie dollar appreciates against the greenback, this will negatively impact your returns. Of course, if the Aussie dollar falls in value against the US dollar, it will boost those returns.

Why Bank of America and Blackrock are bullish on US shares

As the Australian Financial Review reports, Bank of America Corp (NYSE: BAC) is bullish for the outlook of US shares.

Noting that risks remain around the delivery of COVID vaccines and the potential for lengthier global lockdowns, the bank forecasts that a 5% increase in the S&P 500 from its Wednesday close is a conservative estimate:

[A] few themes support stocks: the S&P 500 dividend yield is three times the 10-year yield, and S&P 500 dividends are set to increase in 2021. And unlike bond yields, earnings are nominal and participate in inflationary upside – where inflation risks may be running higher, given rampant money-printing and a potential post-vaccine spike in demand…

Technology and Health Care offer neglect and growth at a reasonable price. We are underweight Staples, Real Estate and Comm. Services which represent past leadership, in our view, of bond-proxies and secular growth. We prefer small to large amid expectations for a strong US economic recovery.

BlackRock Investment Institute is also optimistic on the outlook for US shares, saying investors should look beyond the current volatility.

According to Mike Pyle, global chief investment strategist at BlackRock (quoted by Bloomberg):

We upgrade U.S. equities to overweight, expecting this market to benefit from both structural growth trends and a potential cyclical upswing during 2021. Positive vaccine news reinforces our outlook for an accelerated restart during 2021, reducing risks of permanent economic scarring.

BlackRock stated that apart from the mega-cap tech stocks, there are also semiconductor and software companies with strong growth trends that face few regulatory risks.

2 outperforming US shares with a ‘buy’ rating

We leave off today with a look at 2 outperforming shares Scott Phillips has previously recommended to the members of Share Advisor. Though they’ve posted strong gains since his recommendations, Scott maintains a ‘buy’ rating on both.

First up is Trade Desk Inc (NASDAQ: TTD). The company helps advertisers place programmatic ads across the web, on mobile, and in other places.

Scott recommended Trade Desk on 19 July 2019. His reasons to buy included the company’s innovative business model’s success at winning and keeping customers, its treasure trove of data to help clients, and its fast growing and scalable business.

Since Scott recommended it, the Trade Desk share price has rocketed 266.4% higher.

Today’s second outperforming US share is Match Group Inc (NASDAQ: MTCH). The company owns more than 40 separate online dating platforms including Tinder.

Scott recommended Match Group on 18 June 2020. His reasons to buy included the company’s impressive history of growth, the fact that Tinder continues to lead the way among dating apps, and that Match Group had plenty of room to grow profitability.

The Match Group share price is up 60.6% since 18 June.

At risk of being repetitive, when it comes to looking beyond ASX shares, these figures speak for themselves.

These 3 stocks could be the next big movers in 2020

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

In this FREE STOCK REPORT, Scott just revealed what he believes are the 3 ASX stocks for the post COVID world that investors should buy right now while they still can. These stocks are trading at dirt-cheap prices and Scott thinks these could really go gangbusters as we move into ‘the new normal’.

Find out the names of our 3 Post COVID Stocks – For FREE!

*Returns as of 6/8/2020

More reading

Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends The Trade Desk. The Motley Fool Australia has recommended The Trade Desk. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Why investors should look beyond ASX shares for outsized gains appeared first on Motley Fool Australia.

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