Warren Buffett, the legendary investor and chairman of Berkshire Hathaway, has recently been making waves with his expensive new pivot to value investing. That doesn’t mean he isn’t backpedaling on some of his big sword-waving moves in the U.S. market. Simultaneously, he’s increasing his exposure to Japanese stocks. Buffett has greatly upped his stakes—about 10 percent each—in five large Japanese newest development brokers. This policy reverse foreshadows a kinder, gentler President when it comes to foreign markets.
This tactical shift comes against the backdrop of growing uncertainty in the S&P 500. A handful of tech stocks dominate the index, exaggerating these swings substantially. David Schassler, head of multi-asset solutions at VanEck, encourages investors of all types to build some level of diversification into their portfolios. He advocates adding international equities and other asset classes to mitigate the misfortunes of putting all faith on U.S.-based stocks.
Shifting Focus to Japan
Buffett’s increasing interest into Japan is important as it is a historical pivot from his long-stated aversion to investing outside of U.S. equities. The investment mogul recently increased his stakes in trading houses like Mitsubishi Corp and Mitsui & Co., demonstrating confidence in Japan’s economic recovery and growth potential.
The Japanese market, once considered stagnant, is now seeing renewed interest due to its favorable corporate governance and attractive valuations. That strategic move is symptomatic of a larger belief that opportunities still exist outside the U.S., where Buffett has focused most of his investments for the past few decades.
“Having China and India exposure makes sense.” – David Schassler
Investors are closely watching this transition. Buffett’s actions should challenge the conscience of every investor and encourage them to do something different. Or they can pursue international markets that provide superior long-term growth opportunities.
The Case for Diversification
Particularly with everything that’s happened in the markets over the last year, diversification is key, Schassler stresses. “We’re not anti-U.S., but just saying if you are predominantly invested in the U.S., you probably want to invest outside as well,” he remarked. His powerful assertion is a reflection of the growing consensus among investment experts on this vital point. They think an overconcentration on U.S. stocks could be detrimental to investors in the long term.
The iShares S&P 500 Growth ETF (IVW) is up almost 18% over the last month. At the same time, the iShares S&P 500 Value ETF (IVE) is up roughly 8% as well. This outstanding performance is luring many investors to continue to play close to home. Schassler cautions that these gains may not be long-term improvements.
“We might not see this rally continue on the growth side so you want to have balance in the portfolio.” – Todd Rosenbluth
Now, with the potential for recession growing larger by the day, including short-term truce on brewing trade war between the U.S. and China, Schassler further adds that although recession risks have improved, they are still above historical baselines.
Exploring Emerging Markets
Those investors ready to make long-term commitments will find the most promising opportunities in emerging markets such as India. Schassler cited India as the most exciting growth story, perhaps like China was two decades ago. With a vast, tech-savvy population and government support for economic initiatives, India presents a unique landscape for investment.
“You’ve got a huge population, it’s tech savvy, well-educated, and the government is supporting the economy, so everything lines up there for a growth story.” – David Schassler
Additionally, as Schassler pointed out, China is continuing to do everything possible to stimulate its economy, adding even more support for the case to diversify into Asian markets. “The flows have certainly been favoring the U.S., and investors buying the dip are being rewarded,” Rosenbluth noted, but he cautioned against neglecting emerging markets.
“You got a gift from the market gods.” – David Schassler
Investors need to look much harder at other asset classes, not just public equities. This means understanding alternative assets like gold and going deep into the world of cryptocurrencies like Bitcoin. Schassler recommends that this kind of diversification might set investors up for success when markets inevitably falter in certain areas.