To compensate for the riskier nature of international government bonds, investors should be looking to allocate a portion of their portfolios to international companies possessing certain significant characteristics, according to Wingate Asset Management director of investments Joel Beebe.
“What people should be looking for is positive real yields. Global companies have the power to grow their earnings and their dividends at the rate of inflation or higher and that maintains the real yield required by investors,” he explained.
“The companies that can do that are those with a competitive advantage who are able to pass through inflation and maintain their position in the market. That comes through pricing power,” Beebe said.
Apart from positive real yields and pricing power, low debt is another characteristic people should be searching out when looking for investment opportunities.
“Strong balance sheets are particularly important, because they allow companies to weather the storm of volatility we’ve seen in energy markets and consumer demand changes,” Beebe said.
He also pointed out that the weakness of the US dollar did not necessarily translate into a poor result for global corporations.
“Coca-Cola for example, while it is a US-based company, more than half of its earnings come from outside the US. So US dollar weakness translates into higher profits for Coca-Cola,” Beebe explained.
