NEW YORK ( TheStreet) -- Over the past half-decade, the liquidity-driven bull market has been very generous to shareholders of blue chips such as Exxon Mobil, ( XOM), IBM ( IBM), Wal-Mart ( WMT) and others. But the years ahead, based on demographics, should feature strong growth for foreign small caps such as Adecoagro ( AGRO), Audioboom, InterOil ( IOC) and LiteBulb. Here are three reasons why investors should look to foreign small caps for future gains.
Many of the greatest money managers own foreign small caps as many are excellent stocks.
In addition to being a major shareholder in Exxon Mobil, IBM and Wal-Mart, last October legendary investor Warren Buffett bought Ray-Q Interconnect, an Israeli high tech with about 60 employees (IBM has 431,212, according to Finviz). That is the third Israeli company Buffett has bought. Billionaire hedge fund investor George Soros has done well with foreign small caps such as Adecoagro in farming, and InterOil an energy firm, among many others.
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Demographics Favor Foreign Small Caps
A report from McKinsey & Co., "Winning the $30 Trillion Decathlon," predicts that the great majority of global economic growth will come from emerging market consumers in the future. Small caps like LiteBulb Group, which sells consumer products in over 30 countries, are ideally placed to profit. So are social media firms that have a global appeal such as Audioboom, called the "YouTube of Radio." Adecoagro operates in the South American agricultural sector. InterOil is focused on oil and natural gas production in Papua New Guinea. Rosslyn Data RDT: London punches above its weight class in computer services related to The Cloud.
Foreign Small Caps Offer Much-needed Risk Management Elements
Exxon Mobil, IBM, Wal-Mart and many other American blue chips are great companies that have been great investments. But diversification is always imperative for any investor. Small caps with operations around the world allow for American investors to profit if the U.S. economy should stagnate. With U.S. gross domestic product falling by 2.9% for the first quarter of 2014, that is not just a theoretical concern in portfolio management.