Israel and Gaza. Russia and the Ukraine. When does smart money bet on the conflicts subsiding?
For investors, answers to those questions hinge on what’s driving their interest in a troubled region of the world. Are they solely seeking high returns? Or to achieve deeper socially-driven objectives?
Advisors should drill down about what motivates clients to consider such regions as investments and then evaluate how difficult adding or extracting assets in those places will prove.
Chad Tischer has heard from both types of global investors. He is a principal in Chicago-based investment consulting firm DiMeo Schneider & Associates. Tischer’s firm serves ultrahigh-net-worth families, large nonprofit institutions and university funders. Some investors want to focus on conflict-ridden locations for the tactical opportunity it presents to buy low. Others pursue a quest hoping their investments (or, often, divestments) will help achieve peace or a more stable, humane government in a given foreign nation.
'CAREFUL BALANCE'
A few years back, one of his firm’s nonprofit clients wanted to extract its investments in the Sudan, where a conflict raged at the time and the government had become notorious for human rights violations.
“It’s always that careful balance between what is the investor trying to accomplish with what is the opportunity costs,” he says.
With the client’s Sudanese divestment, the execution proved difficult because the Sudanese economy is not as transparent as other Western nations. But since Sudan represents only a small percentage of all emerging markets, his firm relatively quickly helped the client find alternative investments in the same asset class.
For clients who show interest in supporting either Israeli or Palestinian causes, plenty of options also abound, Tischer says.
“Israel is easy,” he says. “ It’s easy to get done and it’s easy to exclude,” he says. That’s because the proliferation of pro-Israeli funds makes entering or exiting the market straightforward.
'TACTICAL' ADVANTAGE
Christopher Gannatti knows about investors who choose conflict-ridden regions for their investment for the “tactical” advantages. The associate director of research at WisdomTree, which offers ETFs with foreign equity assets and currencies, has clients who profit by getting in early to a conflict-plagued country that subsequently stabilizes.
The Russian and Ukrainian dispute presents such an opportunity these days, Gannatti says. Russian equities and currency “will tend to be going down because people are worried. If during those times of distress you start seeing initial positive signs, such as ceasefire, or you see things go from dire to less dire, then you might get in and see the currency and the equities rebound and you bought them at a lower price,” he says. “Unless you have outright war, it could be a good time to pick up assets.”
Miriam Rozen, a Financial Planning contributing writer, is a staff reporter at Texas Lawyer in Dallas.
