Everyone Needs a Hedge; Think Globally

The S&P 500 deserves to be the core of any investor’s equity portfolio, but relying solely on that is risky.

For the better part of two decades, the index has an unsurpassed track record. But over the years, its equities have become expensive, and today just 10 companies comprise more than 40% of the index’s overall value with an average price-to-earnings (PE) ratio of over 50 (a weighted PE ratio is closer to 34).

And past performance is not a guarantee of future results, which means wise investors will take steps to ensure diversification. Besides elevated PE ratios, the S&P 500 faces numerous risks going forward: inflation, fiscal deficits, geopolitical uncertainty, U.S. dollar weakness and an ebbing labor market, to name a few.

To counterbalance some of those risks, AMG encourages global diversification.

Many folks are apprehensive about overseas investing, but 20 years ago, AMG developed a conservative approach designed to add value to a portfolio’s equity exposure. The ACM Global Dividend Portfolio Strategy is structured to provide equity returns with an emphasis on conservative dividend income from relatively cheaper stocks around the world. The strategy invests in both the U.S. and foreign markets. The global nature of the strategy increases dividend income and includes a hedge against weakness in the U.S. dollar. Foreign stocks have largely outperformed the S&P 500 this year for a variety of reasons, including dollar weakness that has its root in some of the risks mentioned above.