International Stocks are defined as those companies that are located outside of the United States. As of December 2007 these stocks outside the US represented roughly 59 percent of world market capitalization as defined by the MSCI Provisional All Country World Index. This asset class includes companies that are domiciled in developed as well as in emerging markets. Emerging markets generally have lower per capita income than developed markets, but could also be experiencing significant GDP growth. However, this growth often comes with less overall infrastructure support and stability than more developed international economies enjoy.

International Stocks, both emerging and developed, can add important benefits to an overall investment portfolio, providing solid long-term returns while also generating returns that are generally uncorrelated with the other seven asset classes. Research has shown that the size and value effects prevalent in the U.S. stock market are also evident in overseas markets. International portfolios can be “tilted” similarly, toward small cap and value companies to more precisely customize a portfolio to match the particular risk profile of an individual investor.

Emerging market portfolios are carefully screened to include only stocks traded in countries with well-organized capital markets and ample liquidity, a good legal system and reasonable treatment of foreign ownership both with regard to taxation and any restrictions on repatriation of capital.

*Source: DFA – Dimensional Returns 2.0. Returns shown from 1975-2010. MSCI Emerging Market Index results shown from 1988-2010.