INNOCENTS ABROAD:

The Case for International Diversification

APRIL 2015

MARKE T

PERSPECTIVES

executive summary

Over the past six years, U.S. investors have been rewarded for staying close to
home. U.S. equities have entered the seventh year of the bull market, one of the
longest in history, and bond yields have remained contained thanks to massive
central bank intervention, restrained growth and low inflation. A traditional
60/40 blend of U.S. stocks and bonds has performed well relative to most other
asset allocations.
However, with bond yields still near record lows and U.S. equity valuations
stretched, this may not be the case going forward. Three arguments support the
need for more international diversification, particularly in equities:

RUSS KOESTERICH
Managing Director,
BlackRock Chief
Investment Strategist

Relative valuations. U.S. equities trade at a significant premium to the rest of

the world. Longer term metrics, such as cyclically adjusted P/E ratios, suggest
that U.S. stocks are likely to produce, at best, average to below-average returns
over the next five years. In contrast, valuations are considerably lower in
international markets, including developing countries.
U.S. declining share of world GDP. While the United States is still arguably the
worlds most dynamic economy, its relative share of the global economy is
shrinking. Depending on the exact methodology, China is now the worlds
largest economy or soon will be. Owning a predominately U.S. portfolio
underweights the dominant and fastest-growing portion of the global economy.
The basic tenets of portfolio construction. Finally, best practices in portfolio
construction suggest that owning a portfolio solely focused on the United
States may lead to suboptimal risk-adjusted returns. In other words, investors
may be taking on risk that could otherwise be diversified away. This is a
particularly important point today as stock correlations have fallen to their
pre-crisis level, suggesting a greater benefit to diversification.

[2]

INNOCENTS ABROAD: THE CASE FOR INTERNATIONAL DIVERSIFICATION

Simplicity and sexiness, thats what people want.

Diane von Furstenberg
While few would consider any portfolio to be sexy, the appeal
of simplicity applies as much to investing as to any other
endeavor. Investors have gotten themselves in trouble on
more than one occasion embracing questionable, overly
complicated financial products. In the spirit of greater
simplicity, some would argue that a basic 60/40 mix of
domestic stocks and bonds should suffice for most investors.
Market returns in recent years would support this approach.
Since the start of the bull market in March 2009, a 60/40
split of U.S. stocks and bonds would have been hard to beat.
Over this time period, the S&P 500 has gained approximately
200%. Adding to the returns, not only have equities done
phenomenally well but bonds have been surprisingly resilient.
Despite the improvement in the domestic economy, U.S.
10-year Treasury yields are actually below where they were at

the lows in 2008; collapsing credit spreads have meant a rally

in corporate bonds as well. Given the success of this
approach, why change?
For starters, the recent pullback in U.S. equities coupled
with particularly strong performance from Europe and
Japan means that a big U.S. equity overweight has been less
successful year-to-date. For the first time in several years,
U.S. stocks are lagging and investors are shifting money, at
least temporarily, out of U.S. equities and into international
markets (see Figure 1). A combination of factors are driving
this shift away from the United States: lower valuations
outside of the United States, more accomodative monetary
policy in Europe and Japan, improving economic performance
in Europe and the headwind of a strong dollar on U.S.
earnings growth. While three months of good relative
performance should not change anyones long-term asset
allocation, recent events are a useful reminder that U.S.
outperformance is not preordained.

FIGURE 1: ASSET PERFORMANCE YEAR-TO-DATE

Performance in calendar year-to-date percent*
China Shanghai A
MSCI Europe Equities
Japan Topix
MSCI Asia ex Japan
Dollar Index
MSCI EM U.S.
U.K. FTSE 100
Italian BTP
MSCI Emerging Markets Latin America
Nasdaq Composite
MSCI Developed Equities
JPM EMBI Emerging Debt
German Bund
Brent Crude Oil
U.S. 10-year Treasury
S&P 500
ML Global High Yield
Gold
Yen
ML Global Investment Grade
-5.71
CRB Commodities Index
-5.76
Copper
-7.58
GSCI Soft Commodities

27.41
16.19
13.62
13.04
10.22
9.37
8.84
6.05
5.81
5.33
4.38
4.14
4.10
3.06
2.62
2.21
1.35
1.24
-0.37
-1.49

* Total return in local currency except currencies, gold and copper which are spot returns.
Government bonds are 10-year benchmark issues
Source: Thomson Reuters Datastream, BlackRock Investment Institute, 04/13/15.

B L A C K R O C K [3]

FIGURE 2: HISTORICAL NORM

Current Valuation vs. One Year Ago
FIXED INCOME

EQUITIES

100
PERCENTILE RANKING

EXPENSIVE
75
AVERAGE

50

25
Source: Thomson Reuters Datastream, OECDBlackRock
CHEAPInvestment Institute 02/01/15

Asia
Europe
Latin America

Developed
Emerging
Frontier
Asia ex-Japan
Europe ex-U.K.

Emerging
South Africa
India
Mexico
Taiwan
Brazil
Korea
China
Russia

Developed
U.S.
Germany
Canada
France
Australia
Spain
Italy
U.K.
Japan

Euro High Yield

U.S. High Yield
Euro Credit
U.K. non-Gilts
U.S. Credit
EM $ Debt

German Bund
U.K. Gilt
Japanese GB
U.S. Treasury
U.S. TIPS

2014

Sources: BlackRock Investment Institute and Thomson Reuters. Data as of 03/31/15.

Notes: Percentile ranks show valuations of assets versus their historical ranges. Example: If an asset is in the 75th percentile, this means it trades at a valuation equal to or greater than 75%
of its history. Valuation percentiles are based on an aggregation of standard valuation measures versus their long-term history. Government bonds are 10-year benchmark issues. Credit series
are based on Barclays indexes and the spread over government bonds. Treasury Inflation-Protected Securities (TIPS) are represented by nominal U.S. 10-year Treasuries minus inflation
expectations. Equity valuations are based on MSCI indexes and are an average of percentile ranks versus available history of earnings yield, trend real earnings, dividend yield, price-to-book,
price-to-cash flow and 12-month forward earnings yield. Historical ranges extend back anywhere from 1969 (developed equities) to 2004 (EM $ debt).

THE MOST EXPENSIVE HOUSE ON

THE BLOCK
Over the past five years, one of the most repeated refrains
used to defend a strong U.S. equity bias was that the United
States was the best house on a bad block. In retrospect,
this was completely true. The U.S. economy outgrew the rest
of the developed world and still enjoyed the massive tailwind
of unconventional monetary stimulus. The United States has
also been less prone to deflation than Europe or Japan.
Finally, relative to the rest of the worldabsent a government
shutdown or twothe United States has enjoyed a period of
relative political stability, although some might better describe
it as stasis. At the very least, nobody was worried about the
demise of the dollar.
A willingness to pay up for U.S. equities has resulted in
several years of steady multiple expansion. As a result, U.S.
large-cap stocks now trade at nearly 19x trailing earnings,
roughly a 15% premium to the 60-year average. Even looking
at the more recent past, the trailing P/E ratio for U.S. large
caps is roughly a third higher than it was three years ago.
While the current premium on U.S. stocks makes some sense
in the context of low inflation and low rates, valuations look

[4]

stretched relative to the rest of the world. This is particularly

true based on the price-to-book (P/B) measure. Currently, the
P/B on the S&P 500 Index is roughly 75% higher than for the
MSCI ACWI-ex U.S. Index. This is the highest premium since
the market bottom in 2003.
Higher U.S. valuations are also evident when comparing
an aggregate of U.S. value metrics against those of other
countries (see Figure 2). The average U.S. value metric is in
the 75th percentile versus its own history. Most of Europe,
ex-Germany, is closer to the 50th percentile, Japan the 40th,
while emerging markets are even cheaper.
Longer term valuation metrics, most notably the cyclically
adjusted price-to-earnings or CAPE ratio, are even more
troubling. As we discussed in our February Market
Perspectives, Highway to the Danger Zone, the CAPE on
U.S. equities is approximately 27, versus a historical average
of roughly 16. The current reading is well into the upper
quintile of historical observations. This should worry longterm investors. Historically, similar levels have been
associated with below-average returns over the subsequent
five years. By comparison, CAPE ratios are much lower in
other developed markets.

INNOCENTS ABROAD: THE CASE FOR INTERNATIONAL DIVERSIFICATION

THE CHINA SYNDROME

Some will argue that investors can simply get their

international exposure from large U.S. companies that sell
abroad. While it is true that international sales represent a
growing portion of revenue for U.S. companies, even for
large-cap companies in the S&P 500 foreign revenue still
only accounts for approximately 35% of the total.
In aggregate, the companies in an all-U.S. portfolio still
derive the overwhelming majority of their sales from U.S.
customers. Investors who remain concentrated in the
United States will be lacking exposure to the majority
a growing oneof the rest of the world.

HOME ALONE
Beyond valuation and the relative economic position of the
United States, there is a more basic reason to consider adding
international equities to even a conservative portfolio. While an
overweight to the United States has benefited portfolios over
the recent past, over the long term investors should consider
the potential benefits of diversification and better riskadjusted returns that meaningful exposure to international
equity markets can offer.

FIGURE 3: U.S. RELATIVE SHARE WORLD GDP

1985 to Present
36

PERCENT

32
28
24
20
1986

1990

1994

1998

2002

2006

2010 2013

Source: Bloomberg, as of 12/31/13.

FIGURE 4: COUNTRY MARKET EQUITY

CORRELATION

Average of Individual Countries with MSCI World Index

1.0
CORRELATION

Outside of valuations, there is another argument for broader

international exposure: The United States, while still the
dominant economy, accounts for a shrinking share of global
output. Thirty years ago, the United States accounted for
roughly one-third of global output. Today, the number is
closer to 20% (see Figure 3). While Chinas rate of growth is
slowing, China along with India, Indonesia and many other
emerging markets will continue to outgrow the United States
and other industrialized countries for the foreseeable future.
This suggests that the U.S. share of relative GDP should
continue to decline.

.75

0.64
.50
.25
0
1999

2001

2003

2005

2007

2009

2011

2013

2015

Source: Thomson Reuters Datastream, MSCI, BlackRock Investment Institute, 04/10/15.

A structural underweight or even the total exclusion of markets

outside of ones home country is a common phenomenon, so
common in fact that it has a name: home country bias. And in
fairness to investors, a U.S. home country bias is probably
much less dangerous than for investors in other markets.
The United States is one of the best diversified economies and
markets in the world. For example, today the largest sector in
the S&P 500 is once again technology, with a 20% weight; the
largest company is Apple, with a 4% weight. In contrast, in
many markets, even developed markets, sector and company
concentration is much higher. In Switzerland, just four
stocksNovartis, Nestle, Roche and UBSrepresent more
than 60% of the market.

B L A C K R O C K [5]

Given the breadth and diversity of the U.S. economy and

market, it is understandable that many investors feel
comfortable keeping their money within U.S. borders. But while
the tendency is understandable, it is still not optimal.
International markets do offer diversification, in the process
lowering the volatility of the overall portfolio. Of course, there
are never guarantees with investing and diversification may
not protect against market risk or prevent losses.

ALL TOGETHER NOW

Indeed, while few object to diversification in principle, many
investors argue that it doesnt work when most needed:
during a crisis. It is true that during the financial crisis about
the only two asset classes that provided any real hedge were
safe haven bonds, including Treasuries, and gold. Virtually all
other risky assets moved in lockstep. Even in the immediate
aftermath of the crisis, correlations remained unusually high
as investors fixated on macro eventsthe European debt
crisis, the U.S. fiscal cliff, Greecethat transcended asset
classes and geographies. However, a crisis is the exception
that proves the rule.
While frustrating, the recent tendency toward higher
correlations during periods of stress is completely consistent
with history. For example, in the prelude to the Asian crisis in
1997, the U.S. equity market had a relatively low correlation,
around 0.32, with non-U.S. stocks. That correlation jumped by
more than 50% as the world focused on the turmoil in Asia.
A similar phenomenon occurred a year later with the Russian
default in 1998. Prior to that event, the correlation between
U.S. and non-U.S. equities was 0.60. As the crisis hit,
correlations once again rose, hitting 0.75, a 25% increase.
In other words, correlations will invariably rise during a crisis.
Investors, who normally have different time horizons and
strategies, all suddenly focus exclusively on the here and
now. As everyones focus narrows to a single event or issue,
risky assets all behave in a similar fashion. Fortunately, these
periods do not last.
Recently, correlations have been falling as economies diverge
and company fundamentals begin to reassert themselves.
At the peak in 2011, the average correlation of individual
countries was as high as 0.80 (see Figure 4). At this level,
the benefits of international diversification are more muted.
Regardless of the country in which they are domiciled, stocks
are mostly moving together when correlations are this high.
However, over the past three years, correlations have been
dropping. Intercountry correlations recently hit a post-crisis

[6]

low of around 0.50. While they have bounced back somewhat

since then, this reversion to the mean suggests that the
benefits to international diversification should be greater than
they have been during most of the post-crisis environment.
What exactly are those benefits? The argument for
international diversification rests on modern portfolio theory
and the premise that combining assets with low, or ideally
negative, correlation produces better risk-adjusted returns.
While the steady move toward a more integrated global
economy suggests that equity market correlations are
unlikely to be negative, in many instances they are low
enough to offer diversification relative to an all-U.S. portfolio
(see Figure 5).
For example, while the correlation between U.S. large-cap
and small-cap indexes is nearly 0.90 (1 represents perfect
correlation, 0 no correlation, and -1 a perfect inverse
relationship), the correlation drops to 0.60 for Japanese
equities and emerging markets. The correlation between U.S.
large caps and frontier markets, which include countries in
an early stage of development, such as Nigeria or
Bangladesh, is a relatively modest 0.36.

PRACTICED DIFFERENCES
While diversification may be a desirable characteristic in a
well-constructed portfolio, this leaves the question of how
much international exposure is enough. As with most
questions in finance, the answer is: it depends. This is not a
dodge, but a reflection of the fact that portfolio construction
is as much a matter of risk tolerance and constraintswhat
you will and wont invest in and to what degreeas market
views. Investor risk tolerance can determine a portfolios
composition as much, if not more, than expected returns.
If an investor is very conservative, equity exposure will be
limited no matter the geography or how attractive stocks
might be relative to bonds and cash. That said, even for more
conservative portfolios, the international equity allocation
should rarely be zero.
Looking at a few hypothetical portfolios, international equity
allocations look similar for both all-equity portfolios and
more balanced portfolios. For an all-equity portfolio, a
typical allocation to non-U.S. equitiesboth developed and
emerging marketswould be roughly 25% (see Figure 6).
Nor would the relative allocation change much within a
multi-asset class portfolio; international stocks still make up
around 25% of the overall stock allocation within a traditional
60/40 portfolio (60% stocks and 40% bonds).

INNOCENTS ABROAD: THE CASE FOR INTERNATIONAL DIVERSIFICATION

FIGURE 5: ASSET CLASS CORRELATIONS

S&P 500
S&P 500

Russell 2000

Russell
2000

Emerging
Markets

Japan

Europe

20+ Year
Treasury

InternaiBoxx High tional

Yield
Equities

Short
Treasury

International
Bonds

Gold

1.000

0.869

1.000

0.570

0.466

1.000

0.614

0.560

0.430

1.000

0.813

0.723

0.664

0.554

1.000

20+ Year
Treasury

-0.380

-0.395

-0.187

-0.289

-0.310

1.000

iBoxx
High Yield

0.633

0.539

0.534

0.323

0.620

0.044

1.000

International
Equities

0.557

0.465

0.685

0.690

0.638

-0.016

0.469

1.000

Short
Treasury

0.052

-0.010

0.014

0.110

0.118

-0.038

-0.005

0.119

1.000

-0.104

-0.044

-0.013

-0.314

0.063

0.210

0.044

-0.080

0.104

1.000

-0.119

-0.105

0.049

-0.163

0.194

0.456

0.139

0.215

0.077

0.476

1.000

0.363

0.225

0.338

0.168

0.412

-0.127

0.290

0.306

0.042

0.027

0.133

Emerging
Markets
Japan

Europe

Gold

International
Bonds
Frontier

Frontier

1.000

Source: Bloomberg, 03/15/15. Indexes referenced are: S&P 500, Russell 2000, MSCI Emerging Markets Investable, MSCI Japan, MSCI Europe Investable Market, Barclays U.S. 20+ Year
Treasury Bond, Markit iBoxx USD Liquid High Yield, Barclays U.S. Short Treasury Bond, LBMA Gold Price, S&P/Citigroup International Treasury Bond Index Ex-U.S., and MSCI Frontier 100.

FIGURE 6: HYPOTHETICAL ASSET ALLOCATIONS

PORTFOLIO ALLOCATION (%)

50%
40
30
20
10
0
U.S. Large Cap

U.S. Large Cap Value

U.S. Small Cap

U.S. Mid Cap

EAFE

Emerging Markets Equities

100% Equities

60:40 Model

This information should not be relied upon as research, investment advice or a recommendation regarding any security in particular. This information is strictly for illustrative and educational
purposes and is subject to change. This information does not represent the actual current, past or future holdings or portfolio of any BlackRock client.

B L A C K R O C K [7]

FIGURE 7: THEORETICAL MINIMUM RISK AND MAXIMUM RETURN PORTFOLIOS

35%

PORTFOLIO ALLOCATION (%)

28

21

14

S&P
500

Russell
2000

EM
Equities

Japanese
Equities

European
Equities

Long-Term
Treasury

High
Yield

REITs

Cash

Gold

Minimum Risk

International Frontier
Developed
Equities
Bonds
Maximum Return

Source: BlackRock MPS team. This information should not be relied upon as research, investment advice or a recommendation regarding any security in particular. This information is strictly
for illustrative and educational purposes and is subject to change. This information does not represent the actual current, past or future holdings or portfolio of any BlackRock client.

It is also worth highlighting that the allocation to international

stocks remains sizable even with conservative assumptions
for international equity returns. The capital market
assumptions (CMA) that we used in the portfolio construction
exercise included higher expected returns for U.S. equities.1
We assumed expected returns of roughly 9% for U.S. large
caps, but just 7% and 8%, respectively, for Japanese and
European equities, based on historical returns adjusted for
current valuations. While the model does assume a higher
return for emerging markets (a function of higher risk), the
expected return is only slightly above what is expected for U.S.
large caps and slightly below the expectation for U.S. small
caps. In other words, the 25% allocation to international stocks
is not a function of aggressive return assumptions but instead
rests on their diversification benefits.

A sizable allocation to international equities holds even when

the organizing goal of the portfolio changes. Using the same
return assumptions, we ran another set of optimizations
using U.S. equities, non-U.S. equities as well as other asset
classes.2 We ran two separate optimizations with
contradictory goals: maximize return or minimize risk.
Not surprisingly, the portfolio seeking to maximize return,
with no consideration given to risk, contained a large
allocation to stocks, both U.S. and non-U.S. The overall equity
allocation for this portfolio was 90%, with the remaining 10%
in REITs. The allocation to non-U.S. equities was
approximately one-third of the total equity allocation and
roughly 30% of the total portfolio allocation (see Figure 7).

1 MPS Capital Market Assumptions

Asset Class

E[R]

E[R]

Asset Class

U.S. Large Cap

0.0898

Long Treasuries

0.0184

U.S. Small Cap

0.1031

International Government Bonds

0.0067

Japanese Equities

0.0687

High Yield

0.0381

European Equities

0.0789

Short-term Treasuries

0.0222

Emerging Market Equities

0.0908

REITs

0.0809

Frontier Market Equities

0.1077

E[R] as of 02/2015, E[R] is total.

2 Opportunity set included: U.S. large caps, U.S. small caps, emerging market equities, Japanese equities, European equities, long-term Treasuries, U.S. high yield, global REITs, cash, gold,
international developed bonds, and frontier market equities.

[8]

INNOCENTS ABROAD: THE CASE FOR INTERNATIONAL DIVERSIFICATION

What is more surprising is that a portfolio designed with the

opposite objectiveminimize overall riskalso evidenced a
sizable, albeit smaller, allocation to non-U.S. stocks. In this
instance, the optimization resulted in a 12% allocation to
international equities. While the overall allocation was much
smaller than in the previous example, this reflects the lower
allocation to equities within a risk-constrained portfolio.
When you look at the international allocation as a percentage
of the overall equity slice, international stocks comprise
roughly 40% of the equity allocation.
At first, this seems a counterintuitive result. Why would a
more conservative portfolio, particularly one with a relatively
modest allocation to equities, allocate a greater percentage
of the equity exposure to riskier, non-U.S. markets? The
rationale again has to do with diversification. Most of the
minimum risk portfolioroughly 65%is allocated to bonds
and cash. These assets serve to help minimize the volatility.
But as discussed previously, in addition to overweighting low
volatility instruments, the other mechanism to lower portfolio

level volatility is diversification. While international stocks are

generally riskierthey are denominated in foreign currencies
that also fluctuate, adding to the volatility of returnsthe
relatively low correlations of certain foreign markets with U.S.
equities help to lower the volatility of the overall portfolio.
The inclusion of international stocks, particularly in lower risk
portfolios, raises another concern: Should investors hedge
the foreign exchange risk when owning international equities?
While the answer obviously depends on expectations for the
dollar, as a rule of thumb, the decision has not, at least
historically, had a material impact on returns. According to
research from the BlackRock Investment Institute, over the
last 15 years the return impact of currency on international
market equities has been modest or negligible (see Figure 8).
That said, currency fluctuations can matter over shorter time
frames (2-5 years). Investors with a shorter term horizon who
have a strong conviction in an appreciating dollar may
consider employing currency hedged vehicles.

FIGURE 8: CURRENCY IMPACT

Period

MSCI EAFE Index

Currency Impact

2000 through 2004

1.46%

4.74%

2005 through 2009

7.89%

2010 through 2014

2000 through 2014

Period

MSCI EM Index

Currency Impact

2000 through 2004

8.35%

4.39%

-0.10%

2005 through 2009

26.15%

4.40%

6.16%

-2.52%

2010 through 2014

2.78%

-0.13%

5.17%

0.71%

2000 through 2014

12.42%

2.89%

Source: MSCI, as of 12/31/14. USD Index returns are for illustrative purposes only. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.

BL ACK R O CK [9]

CONCLUSION
Everything should be made as simple as possible, but not simpler.
Albert Einstein
Simplicity has its own benefits. For most investors, a portfolio
with broad exposures and fewer moving parts is preferable.
However, too much simplicity may not be ideal either. A
portfolio that is concentrated in just one market, even a large,
diversified market such as the United States, will rarely
produce the best long-term risk/reward trade-off.
Diversification is not a magic elixir. The biggest caveat is that it
is least likely to work when most needed, i.e., during a crisis.
Instead, the benefits are derived, almost imperceptibly, over a
multi-year time frame. Long term, a well-diversified, global
portfolio can help minimize unnecessary risk. The benefits can
even accrue to more conservative investors, as some
international diversification provides for a more balanced, and
hopefully less volatile, portfolio.
While international diversification may be a sensible idea for
most investors, we believe these benefits may be even more
likely to accrue in the coming years. The United States is
expensive relative to other markets. While this has not
inhibited returns over the past couple of years, valuations
matter most over longer horizons. The United States may have
the best fundamentals, but U.S. equities have rarely posted
stellar returns from these valuation levels. In contrast,
international equity valuations are not nearly as stretched.
Finally, an all-domestic portfolio inherently underweights the
growing portion of economic activity that occurs outside of
U.S. borders. Even optimists who believe the United States will
be the dominant economy for years, if not decades, to come
have to admit that the relative footprint of the United States is
likely to decline.

[10] INNOCENTS ABROAD: THE CASE FOR INTERNATIONAL DIVERSIFICATION

B L A C K R O C K [11]

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accordance with Australian law or practices.
Lit. No. MKT-PERSPECTIVE-0415

In Singapore, this is issued by BlackRock (Singapore) Limited (Co. registration

no. 200010143N). In Hong Kong, this document is issued by BlackRock Asset
Management North Asia Limited and has not
been reviewed by the Securities and Futures Commission of Hong Kong. Not approved
for distribution in Taiwan or Japan. In Canada, this material is intended for permitted
clients only. In Latin America this piece is intended for use with Institutional and
Professional Investors only. This material is solely for educational purposes and does
not constitute investment advice, or an offer or a solicitation to sell or a solicitation of
an offer to buy any shares of any funds (nor shall any such shares be offered or sold to
any person) in any jurisdiction within Latin America in which such an offer, solicitation,
purchase or sale would be unlawful under the securities laws of that jurisdiction. If any
funds are mentioned or inferred to in this material, it is possible that some or all of the
funds have not been registered with the securities regulator of Brazil, Chile, Colombia,
Mexico, Peru or any other securities regulator in any Latin American country, and thus,
might not be publicly offered within any such country. The securities regulators of
such countries have not confirmed the accuracy of any information contained herein.
The information provided here is neither tax nor legal advice. Investors should speak to
their tax professional for specific information regarding their tax situation. Investment
involves risk. The two main risks related to fixed income investing are interest rate risk
and credit risk. Typically, when interest rates rise, there is a corresponding decline
in the market value of bonds. Credit risk refers to the possibility that the issuer of
the bond will not be able to make principal and interest payments. International
investing involves risks, including risks related to foreign currency, limited liquidity,
less government regulation, and the possibility of substantial volatility due to adverse
political, economic or other developments. These risks are often heightened for
investments in emerging/developing markets or smaller capital markets. Diversification
and asset allocation may not protect against market risk or loss of principal.
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156894T-0415