- Personal values may drive politics, but dollar values drive portfolios.
- Along with owning U.S. companies, whether operating domestically or worldwide, investing in or hedging with foreign-based companies is a sound portfolio strategy.
- At Main Street Value Investor, we prefer the hedging capabilities of index exchange-traded funds as opposed to their market correlated “average” investment results.
- Here is why we choose the Vanguard FTSE All-World ex-US ETF as a foreign hedge against our U.S. domiciled common stock holdings.
The current populist sentiment toward protectionism and nationalism provides a feel-good platform to generate votes on Election Day with heated debate in the comment sections of news and social media during the year in between.
Nonetheless, carrying such sentiment to our portfolios could jeopardize investment opportunities in the global markets or - at the very least - hedging strategies to protect against our inherent bias toward the stocks of U.S.-based companies.
Warren Buffett rightfully promotes a bull market case for S&P 500 components in the long term, but we advocate foreign exposure at least as a protection against a U.S. bear market in the near term.
In the second of our series on ETF index hedging, we offer research on our favorite foreign vehicle: the Vanguard FTSE All-World ex-US ETF (VEU).
First, let's revisit the general concept of portfolio hedging and why it is essential to any long-term investment strategy.