5
Find value beyond the U.S.

KEY TAKEAWAY

Caution is warranted in the near term, but lower valuations mean more room for long-term growth in international stocks. Quality should be a priority.

With U.S. stocks carrying relatively lofty price tags, particularly given lackluster company earnings, it can make good sense for investors to look beyond the U.S. for opportunities to expand their return potential and diversify their portfolio.

NON-U.S. STOCKS COULD OUTPERFORM
Five-Year Market Return Expectations

Graph: Non-U.S. Stocks Could Outperform
Source: BlackRock Investment Institute, as of June 2016. Notes: The bars show our annualized five-year nominal return assumptions from a U.S. dollar perspective. Representative indexes are (left to right): MSCI U.S. Index, MSCI U.S. Small Cap Index, MSCI World ex-U.S. Index, MSCI Emerging Markets Index.

Granted, corporate earnings are not stellar overseas. Japanese earnings growth turned negative and emerging markets earnings are showing only tentative signs of recovery from a multi-year downturn. Brexit has also caused us to downgrade our view of Europe, where the earnings outlook is now highly uncertain. However, non-U.S. valuations are compelling compared with the U.S., indicating they may have more room to run. We expect this could result in outperformance relative to U.S. stocks over the long term.

QUALITY COUNTS WHEN MARKETS GET CHOPPY
Performance of High- vs. Low-Quality Stocks and Volatility, 2014–2016

Graph: Quality counts when market gets choppy
Source: BlackRock, as of June 2016. We define “quality” stocks as those exhibiting low volatility, low leverage and low forecasted earnings variability.

As in the U.S., selectivity is key and a focus on quality characteristics is prudent in an environment likely to bring episodes of higher volatility. Our analysis shows that stocks deemed “high quality” — based on consistent earnings, low leverage and low volatility — perform better when markets are choppy. This supports the case for dividend growers internationally as well.

Carefully consider the Funds’ investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds’ prospectuses or, if available, the summary prospectuses which may be obtained by visiting blackrock.com/latamiberia. Read the prospectus carefully before investing.

In Latin America and Iberia, for institutional investors and financial intermediaries only (not for public distribution). This material is for educational purposes only and does not constitute investment advice or an offer or solicitation to sell or a solicitation of an offer to buy any shares of any fund or security and it is your responsibility to inform yourself of, and to observe, all applicable laws and regulations of your relevant jurisdiction. If any funds are mentioned or inferred in this material, such funds have not been registered with the securities regulators of Brazil, Chile, Colombia, Mexico, Panama, Peru, Portugal, Spain Uruguay or any other securities regulator in any Latin American or Iberian country and thus, may not be publicly offered in any such countries. The securities regulators of any country within Latin America or Iberia have not confirmed the accuracy of any information contained herein. No information discussed herein can be provided to the general public in Latin America or Iberia. The contents of this material are strictly confidential and must not be passed to any third party.

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