How to Turn Sovereign Wealth Into Personal Wealth
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We all know the U.S. government is in debt up to its eyeballs. Moody’s is already threatening to downgrade the country’s debt rating due to unfunded liabilities for Medicare and Social Security.
But our other big national deficit is creating a different problem, as well as the potential for one low-risk, high-return investment opportunity. Here’s the bottom line…
Because the United States has run such a large and persistent trade deficit for so many years, other countries - like China - have been able to run up large current account surpluses. These surpluses, in turn, have enabled them to accumulate substantial foreign exchange reserves.
For years, this money was invested in the world’s safest securities: U.S. Treasuries. But the returns from these securities haven’t been so hot lately. Especially when you’re a foreign investor watching the greenback wilt like last week’s roses.
Many world governments are now putting their money to work elsewhere. (Can you blame them?) Sovereign Wealth Funds are their vehicle.
Sovereign Wealth Funds are the financial assets of a country - usually part of the national savings - that are owned and organized into a state-controlled fund. These funds are increasingly moving money into global equity markets. And the sums involved are fairly staggering.
Current assets controlled by Sovereign Wealth Funds are estimated to be $3 trillion. They are expected to reach at least three times this amount over the next five years.
This is a bit scary to some investors, because these funds are entirely secretive. There is no world body to which they have to disclose what they are buying or when.
But here’s a common sense insight. They aren’t buying small or mid-cap companies. There isn’t enough liquidity in these to allow them to enter or exit their positions efficiently.
No, these funds must invest in the world’s biggest companies. As an individual investor, you might benefit from picking up giant companies like General Electric or British Petroleum or HSBC.
Or you can do it the easy way, by plunking for a few shares of the Dow Jones Global Titans Fund (AMEX: DGT).
This exchange-traded fund (ETF) holds 30 of the world’s largest publicly traded companies. It also pays a 2.5% dividend, 25% more than the average money market is paying right now.
Its major holdings include the companies I mentioned above, plus other market bellwethers like AT&T, Johnson & Johnson, Nestle, Microsoft and Proctor & Gamble.
The Global Titans Fund has several advantages. It is well diversified, liquid, and gives you instant foreign currency diversification. (60% of the holdings are in the United States, the rest are in international markets.)
It also uses a passive indexing approach, so it is both cost-effective and highly tax-efficient. Annual expenses are only one half of one percent.
This fund was originally brought to my attention by Eric Roseman, the Sovereign Society’s savvy Investment Director. (To read Eric’s views and learn more about international money flows, global investing and financial privacy, I suggest you check out the Sovereign Society’s Off Shore A-Letter. It’s quite good - and it’s free.)
In sum, the Dow Jones Global Titans Fund is holding exactly the mega-cap global companies that Sovereign Wealth Funds are likely to plow money into for many years to come.
My suggestion? Pick up a few shares now. And let the world’s most powerful creditors push your shares higher in the weeks and months ahead.
Good investing,
Alex
Source: How to Turn Sovereign Wealth Into Personal Wealth
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Tags: AT&T, British Petroleum, DGT, ETFs, Foreign Exchange Reserves, General Electric, Global Equity Markets, Global Titans Fund, High Return Investments, HSBC, Investment Opportunity, Johnson & Johnson, Microsoft, Mid Cap Companies, National Deficit, Nestle, Proctor & Gamble, sovereign wealth funds, US dollarAbout the Author
Alex Green is Investment Director of The Oxford Club, a private financial organization dedicated to building and preserving the wealth of its members, independent of Wall Street's dubious influence.
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