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Should Associations Rethink Investments in Foreign Stocks?

Typical portfolios allocate less than 1/4 of their equity investments to foreign stocks

Approximately 60 percent of the world’s publicly traded companies are based outside the U.S. Yet many association investment portfolios look very little like the overall global equity market. According to the ASAE Foundation’s latest edition of Association Investment Policies, Practices, and Performance, the typical association heavily favors U.S. stocks, allocating less than a quarter of its equity investments to foreign stocks.

There is a body of behavioral finance research that suggests that home-country bias—the idea that investors inherently favor investments in their own country—is a real phenomenon. Associations appear to be no different in this regard. However, perhaps more important has been the significant dominance of U.S. stocks over foreign stocks measured by performance over the past decade.

Put another way, $1,000 invested 10 years ago in the U.S. equity market would be worth nearly twice as much ($3,450) as an identical investment in the foreign equity markets ($1,890). This large performance disparity can reinforce the home-country bias of even the most sophisticated investors.

Please select this link to read the complete article from ASAE.

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