Survey on International Portfolio Investments

Abstract

At the end of fiscal year 2013, the level of investment held by U.S.- based businesses and individuals in assets abroad was US$ 21.9 trillion, and the position held by foreign-based counterparties in the U.S. $ 26.5 trillion (B.E.A., 2014). With volumes that exceed 30% of the world GDP (World Bank, 2014), these levels of investment must be rationalized by worthy financial reasons. Do these investments tend to concentrate in certain segments of the global economy, and would these segments and areas tend to change through time, and business cycles? In this survey on international portfolio investment several topics are analyzed, including the reasons for investing in foreign markets, the performance of U.S. versus foreign stocks, the risks involved in such investments, hedging techniques to deal with foreign currency risks, and time horizons to consider when investing overseas. The conclusion that follows is that by investing in international assets, using the appropriate instruments with a reasonable hedging strategy, and over the long-term will produce superior returns compared to a purely domestic investment strategy.