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Your 'made in America portfolio' isn't what it seems

Your 'made in America portfolio' isn't what it seems

07/04/2014

By Chuck Jaffe, MarketWatch

For most Americans, there's nothing better than waving the flag and showing their patriotism while celebrating the Fourth of July.

But there may be nothing better for their investment portfolio all year long than celebrating America by investing in domestic-equity funds.

That's not a statement on the U.S. stock market so much as it is a comment on how "domestic" funds aren't nearly as red, white and blue as their shareholders expect.

It doesn't take a patriot to acknowledge that -- despite its many faults -- the U.S. stock market is the world's best in terms of regulation, consistency and accuracy of numbers. Performance hasn't been too shabby either, with an average annualized gain over the last five years of more than 19.5% for the Standard & Poor's 500 index (SPX) .

The benefits of diversification are undeniable, and anyone who lived through the bear market of 2000 or the financial crisis of 2008 knows that being "all-domestic" can mean getting swept out with the tide.

But the underlying truth is that investors are far more diversified simply by purchasing domestic mutual funds than they might recognize, so much so that the category of "domestic fund" may be more misnomer than accurate description.

"Investors are unaware of how much international exposure they have in a domestic fund, because it's not easily teased out in anyone's portfolio, but it's more than they would expect," said Michael Foss, manager of Brown Advisory Equity-Income (BIADX) . "You can't get that international exposure in all sectors or industries, but you start with more than you would expect."

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