February 25, 2021 | Vanguard Perspective
Eating bacon and eggs for breakfast or wearing a pair of favorite, broken-in jeans—sometimes we enjoy the comfort of familiar things. But when it comes to investing in equity markets, sticking with well-known U.S. companies—like Amazon.com, Alphabet (the parent company of Google), Apple, PepsiCo, and Johnson & Johnson—could cause your clients to miss out on potential growth opportunities.
As an advisor, you know that not all great stocks are found in U.S. markets. Companies based outside the U.S. make up nearly half of the value of stocks worldwide.1 International investing also offers your clients the benefits of diversification.
So how can you help your clients get more comfortable with international equity investing? Consider making them more familiar with these five international companies by comparing each to its well-known U.S. counterpart.
U.S. counterpart: Amazon.com
Alibaba Group Holding (Alibaba) is a Chinese multinational technology company. It specializes in e-commerce, retail, online marketing platforms, and internet services. The company also provides electronic payment services, retail search engines, and cloud computing services.
Alibaba’s consistent above-average revenue and earnings growth may help drive the stock’s future performance. Alibaba’s three-year sales growth (46.2%) is significantly higher than Amazon’s (27.7%).2
U.S. counterpart: Alphabet
Tencent Holdings (Tencent) is a Chinese holding company that provides value-added technology and internet-related services for specific entertainment and artificial intelligence scenarios.
Tencent has higher three-year sales growth when compared with Google (33.7% versus 21.8%, respectively)2 and a lower valuation and greater growth potential.
U.S. counterpart: Johnson & Johnson
Roche Holding (Roche) is a Swiss multinational health care company that operates worldwide under separate pharmaceutical and diagnostic divisions and produces a wide range of prescription drugs.
Relative to Johnson & Johnson, Roche has higher three-year sales growth (6.7% for Roche versus 4.7% for Johnson & Johnson).2 Roche is also attractively valued, with shares trading below expected earnings.
Both companies have stakes in coronavirus vaccines, which positions them for success in the current environment.
U.S. counterpart: PepsiCo
Nestlé is a Swiss multinational packaged-food company that manufactures and markets a wide range of food products, from bottled water to confectionery to pet foods.
When compared with PepsiCo, Nestlé is in a strong position from a valuation perspective (23.1% for Nestlé versus 27.0% for PepsiCo).² Nestlé has a moderate dividend yield that has been growing steadily.
U.S. counterpart: GrubHub
Meituan is a Chinese company that has transformed itself into a super app, offering users the ability to access items from food delivery to group buying to hotel services. While U.S.-based GrubHub delivers around 300,000 meals a day, Meituan delivers more than 25 million meals a day!3 Its new grocery delivery service has been booming as a result of COVID-19 lockdowns.
Meituan’s three-year sales growth is 93.6% versus 39.4% for GrubHub, and its market capitalization is approximately 30 times larger.2
From portfolio growth to investment growth, investing internationally can help expand clients’ financial horizons. You can help your clients get exposure to these investment opportunities through Vanguard ETFs® and Vanguard mutual funds.
| Alibaba | Tencent | Roche | Nestlé | Meituan | Total | ||
|---|---|---|---|---|---|---|---|
| Vanguard ETF®/fund | Ticker | Portfolio weighting | |||||
| Emerging Markets Stock Index ETF | VWO | 7.90% | 6.45% | — | — | 1.97% | 16.32% |
| International Growth Admiral* | VWILX | 6.23% | 5.24% | 1.18% | 1.07% | 2.59% | 16.31% |
| International Dividend Appreciation Index ETF | VIGI | — | 5.56% | 3.43% | 3.96% | — | 12.95% |
| Emerging Markets Select Stock Admiral* | VMMSX | 5.84% | 5.01% | — | — | 0.81% | 11.66% |
| ESG International Stock ETF | VSGX | 2.17% | 2.03% | 1.11% | 1.46% | 0.63% | 7.40% |
| FTSE All-World ex-US ETF | VEU | 2.38% | 1.95% | 0.99% | 1.39% | 0.59% | 7.30% |
| Total International Stock Index ETF | VXUS | 2.14% | 1.75% | 0.90% | 1.25% | 0.53% | 6.57% |
| FTSE Europe ETF | VGK | — | — | 2.13% | 2.85% | — | 4.98% |
Source: Vanguard, data as of November 30, 2020. Alibaba holdings in the Emerging Markets Select Stock Fund are a combination of local and ADR shares.
*Data as of September 30, 2020.
1 FTSE Global All Cap Index, as of November 30, 2020.
2 FactSet, as of June 30, 2020.
3 Baillie Gifford Overseas Ltd., as of June 30, 2020.
Notes: