The Smart Way to Buy Foreign Stocks

You've finally found it.

As an income investor, you are always looking for that perfect investment. You know the type -- the company with a strong competitive advantage, a long-term growth story that would put Microsoft to shame, and best of all, a 15% yield that will put you on easy street.

Of course, the security doesn't trade in the United States -- this perfect combination is almost unheard of in the low-yielding U.S. And with millions of investors here, an opportunity like this would have already been exploited.

But if you think you have to wave goodbye to your dream stock because it only trades abroad, you're happily wrong. Today, it is easy to buy many of the hundreds of high-yielding stocks that trade outside the United States. In today's report, we'll let you know how you can easily add these foreign income machines to your dynamic portfolio.

(1.) Why U.S. Investors Need Overseas Exposure

In the past, only wealthy investors and institutions could invest abroad. But small investors hungry for overseas stocks are having it easier every day. Democracy has come to Wall Street, and formerly unattainable markets can now be easily and cheaply traded by everyone.
 
The most recent big news is that the SEC is now allowing foreign brokers to sell directly to U.S. investors. This marks the first time since the Wall Street crash of 1929 that the SEC has allowed that. Conversely, many more U.S. brokerages are now starting to offer direct access to the markets in Toronto, Tokyo, Paris, Hong Kong, Australia and London, among others.

Now, most of your regular online discount brokerages can't give you access to the lucrative international markets just yet. But many well-known brokers are working toward this goal. For now, you shouldn't let this be a hindrance. If you're looking to access overseas markets, you simply need to start an account with a brokerage that offers international trading (we profile several later on in this report.)

In fact, investors who will take only a few minutes today to open an account with one of the brokerages we list later can be trading on the foreign markets as soon as tomorrow. But for those who are still on the fence about starting a new account to invest internationally, you may not know exactly what you are missing...

Higher Yields Overseas
It's a cash-flow desert here in America for anyone who needs to bank comfortable income off their portfolio. While you can find the occasional high-yielding stock, odds are that anything paying above say, 12%, is a basket case.

In fact, once you weed out the money losers, only 12 U.S. common stocks pay more than 12%. Just 12 lonely survivors. But guess what? Expand your horizon a bit, and it's a completely different story.

Right now, there are actually 481 profitable foreign companies yielding between 12% and 25% -- they just don't happen to be in the U.S.

Twelve here versus 481 abroad -- where do you think the best hunting ground is for yield-hungry investors?

Just take a look at our chart. With average yields abroad simply beating the pants off of those in the United States, it's a mistake not to look internationally for a solid income stream.

Now you may be a little cautious about investing internationally because you think foreign stocks are a gamble -- and they'll crash with even the hint of an economic slowdown in the United States. In fact, you may have heard the old adage "When the U.S. sneezes, the entire world catches a cold." But with the reemergence of a stable Europe and the rise of thriving economies like Brazil, Russia and India, this is not the case anymore.

Even in light of the recent turmoil in U.S. markets, many international indices have weathered the storm, enriching savvy U.S. investors who have smartly diversified their portfolios into overseas markets. For example, from August 2003 to August 2008, the S&P 500 delivered average gains of about +9% per year. While that return is certainly respectable, it lagged most foreign benchmarks -- stocks jumped nearly +19% per year in Germany, +28% in Hong Kong, and +49% in Brazil over the same time frame. Obviously, with the U.S. market looking rocky investing abroad gains even more appeal. With a credit crunch, a sagging housing market and uncomfortable inflation hurting the U.S. economy, the real gamble is not investing internationally.

Faster Growth Internationally
After a surprisingly strong economic run that started in 2001, the U.S. economy began to slow in 2007 and is expected to chug along fairly slowly in the coming years. But slower economic growth limits the potential for most companies to grow rapidly; that means fewer companies will be likely to post strong earnings and cash-flow growth, which likely will rein in overall market returns.

What's an investor to do? As you can see from our chart, you should look overseas, where many economies are growing much faster than our own. Simply put, diversifying overseas is more important than it was in the past. Just as the correlation between the U.S. economy and those overseas has weakened, so has the correlation between U.S. stock market returns and those in other countries. When the U.S. slows, the money will flow to international markets offering greater returns.

There's another reason to invest overseas. The world is witnessing something unprecedented: a sustained economic boom among so-called emerging markets (some of which have already emerged to join the world's largest economies). Again, globalization is driving this phenomenon. And because this trend is likely to last for many years to come, it represents a terrific investment opportunity -- for income investors or anyone else. But the argument for going international doesn't end there. There is also the effect of a falling dollar.

The Falling Dollar
The long-term trend of the dollar over the past several years has been undeniable. With the exception of 2005, it has consistently fallen relative to other currencies since the early part of the decade. Between 2003 and 2008, for instance, the dollar fell a total of -22.8% against a broad basket of major currencies. And while it has shown some signs of life in recent months, the long-term trend is still down.

If you have traveled abroad recently, then you probably understand the impact of a weaker dollar when it comes to purchasing power.

(2.)  How Can You Purchase Shares of International Companies?

As you can see, all the reasons for investing internationally are culminating into a "perfect storm" of sorts. That brings us the meat and potatoes of today's report -- how can you get a piece of these lucrative international markets?

As you likely know, some foreign firms trade on U.S. exchanges in the form of American depository receipts (ADRs). ADRs represent ownership positions in the foreign company's shares. They trade on U.S. exchanges and pay dividends in U.S. dollars. These shares are as easy to buy as any common stock, and can be bought in any brokerage account.

While we profile many ADRs in High-Yield International, they aren't the thriving marketplace for international trading they once were. For years, ADRs played a crucial role on Wall Street -- then came the post-Enron Sarbanes-Oxley Act.

Sarbanes-Oxley imposed onerous new requirements on listed companies. It even said corporations must have international auditors review and sign off on their financial statements -- a costly endeavor. It's no surprise that new ADR issues are almost non-existent.

Why should international companies go to all that trouble when legions of eager new investors are cropping up around the world, especially in the emerging economies of Asia? Unfortunately, the pool of ADRs that U.S. investors can dip their toes into is drying up fast.

Even some of the world's premier companies -- including Taiwan's Hon Hai Precision Industries, the world's largest contract maker of electronics -- are off-limits to U.S. investors. These companies haven't bothered to register with the SEC, and don't even have ADRs.

The point is, while they provide valuable international access, if you want the best foreign stocks, you can't just sit back and buy ADRs. Instead, by expanding your brokerage choices just slightly, you can buy practically any security in the world.

What to Look for in a Broker
Later on in this report, we profile several brokers that offer easy trading on foreign stock exchanges. But before you just go down the list and pick an international broker at random, there are a few points you will want to consider...

Do the broker's trades actually take place on a foreign exchange, or on the U.S. "Pink Sheets"? Pink Sheet transactions usually have wide "spreads" between the bid and ask prices for a stock. These spreads create a hidden cost that many investors aren't even aware of. Buying or selling directly on a foreign exchange helps to reduce this problem.

What are the specifics of dealing with the exchange rates on trades and dividends? Currency exchange should only cost a few tenths of a percent on a trade, but unwitting investors can be hit with much higher costs if they don't do their homework.

What is the commission/fee structure for trading overseas? Are there minimum transaction amounts, special fees, hidden costs or any other miscellaneous fees? Most brokers should be able to provide a list of all charges for an overseas trade before you invest.

Are you allowed to place limit orders on your overseas trades? Just as with thinly traded U.S. securities, there may be a large spread between the bid and ask prices for a foreign security. By using a limit order, you can ensure you buy or sell a security for a certain price or the order is canceled.

These few points will help you to find the best brokers for trading internationally. Below, we give you the names of several brokers specializing in international trading. In addition, we list the appropriate contact information, as well as which international markets they give you access to. This list should provide a solid base of options to investigate for anyone looking to tap into a higher income stream overseas.

(3.)  Brokers Offering Foreign Trading

Euro Pacific Capital

Based in the United States, Euro Pacific Capital is a full-service broker specializing in foreign markets and securities. The brokerage has direct relationships with a number of foreign trading desks, which helps its clients avoid the large spreads often imposed by U.S. market makers of foreign securities, thereby reducing costs.

Although the firm specializes in foreign investments, it provides access to all U.S. equities. The brokerage also offers a full array of services ranging from retirement and trust accounts, complete financial planning, checking accounts, life insurance, and annuities.

Markets Traded:  Argentina, Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Israel, Italy, Japan, Luxembourg, Mexico, Netherlands, New Zealand, Norway, the Philippines, Poland, Singapore, South Africa, Spain, Sweden, Switzerland, Thailand, United Kingdom, and United States

E*Trade

A name familiar to many, discount online broker E*Trade is a major broker in the international trading arena. The firm has opened up six of the largest international markets to its clients, all of which are accessible through its online trading platform. Just as you would enter an online trade for a U.S. security, you can easily do the same for foreign securities with E*Trade -- and even do it in the local currency.

EverTrade (EverBank)

Started in Jacksonville, Fla., EverBank offers an online discount brokerage, EverTrade, as one of its many diversified financial services. EverTrade gives customers access to an array of foreign markets, as well as domestic securities and mutual funds. There are no account minimums or maintenance fees, although the $50 per trade charge for foreign equity trades may strike some investors as a little steep. However, considering the prices charged by many full-service brokers, this amount is not too exorbitant.

Interactive Brokers

Interactive Brokers is a discount brokerage that mostly caters to professional traders -- hedge funds, money managers, and other institutions that trade tens of thousands of shares every day -- but it also accepts individual investor accounts.

That's a huge boon for anyone looking to buy foreign securities, because in addition to the U.S. markets, Interactive Brokers provides investors access to securities on 70 exchanges worldwide.

NobleTrading

NobleTrading is an online discount trading company based in New York. Similar to Interactive Brokers, Noble is designed with the experienced investor in mind. Investors can place trades through the firm's online trading platform or by speaking with a representative over the phone. The company prides itself on customer service and promises the ability to speak with a live representative immediately when calling -- and also has online chat available if you prefer. Either way, this focus on customer service is a plus for those unfamiliar with international trading.

Noble's reach extends to more than 20 different markets, offering investors plenty of options. The brokerage also offers plenty of tools for investors and deals with options, futures and forex trading as well.

Markets Traded:  Australia, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Mexico, New Zealand, Norway, Portugal, Russia, Singapore, South Africa, Sweden, Thailand, the United Kingdom, and United States

Thanks for reading this special report, The Smart Way to Buy Foreign Stocks.

Editorial Staff
High-Yield International
http://www.streetauthority.com/

StreetAuthority LLC
839-K Quince Orchard Blvd. 
Gaithersburg, MD 20878-1614

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