Investing Beyond Our Shores

sk investors where they should invest and their answer typically is, "In the U.S., of course". They should take a broader view. Consider this fact: the U.S. has been a top-performing market in only 1 of the last 10 years! That year was 1995, when the U.S. came in second behind Switzerland, and ahead of Sweden, Spain and Belgium. In 1996, the top five performers were Venezuela, Hungary, Zimbabwe, Poland and Turkey. (Source: J.P. Morgan, rankings are based upon annual returns in U.S. dollars)

In addition to better performance, consider diversification. Ten year data from J.P. Morgan shows that the MSCI EAFE index correlates to the S & P 500 only at .46. The significance of this low correlation is that, if the U.S. market heads south, diversification into European markets provides some measure of protection.

The key to investing beyond our shores is not only to select the right companies but also to select the right countries from an economic as well as a political standpoint. Witness the recent concern regarding France's election of its new prime minister. Despite modest economic growth in France, the new prime minister is a socialist who likely will be forced to compromise with France's communist party. Probably not the country to invest your money.

Which countries will be top performers in the future? At Advocate Capital Management, Inc., we believe that Ireland stands out as a leader. Set aside the image of farmers riding horse drawn carts! Today's Ireland has sustained high economic growth rates, while maintaining low inflation. As a result of this growth and a pro-business environment, Ireland already has attracted scores of international businesses.

The Economy of Ireland

Gross Domestic Product

From 1992-1996, Ireland's real GDP growth rate surpassed its European counterparts. In fact, its GDP was more than double that of the United Kingdom, the Netherlands, Belgium/Lux, Germany, France, Spain and Portugal (source: Ireland's Industrial Development Agency, including 1995 and 1996 projections).

Agriculture, forestry and fishing form only 7.8% of Ireland's GDP. The bulk of its GDP originates from services (52.6%) and from industry (39.6%). Ireland's growth in manufacturing output (volume change between 1995 and 1996) is 12%. Ireland's growth in manufacturing exports is 14%. Exports form 79.9% of Ireland's GDP. The principal exports are electronics and software (40%) and chemicals and related (23%). Ireland can boast of the highest European balance of trade as a percentage of GDP (1994), and unlike the U.S. and many other countries, it has a trade surplus.

To facilitate further growth, Ireland recently invested $3.5 billion to give it one of the most advanced telecommunications network systems in Europe.

Workforce

Total at work is 1,233,000. 61% are employed in services, 28% in industry, and 11% in agriculture. Further, employment growth between 1996 and 1998 is projected to exceed the U.S., Japan, France, Germany, the United Kingdom and the European Union (source: OECD Economic Outlook, 1996).

Ireland's workforce is impressive. First, the workforce is young: only 28% of the population is over 45 years old. By the year 2000, Ireland's workforce will be superior to its European counterparts, with 46% being under the age of 29 in year 2000. Moreover, according to the Global Competitiveness Report (1996), Ireland:

Is second only to Germany (and surpasses the U.S.) in secondary and technical training;

Has the greatest number of science graduates per 100,000 people;

Is second only to the U.S. in public expenditures on education (as a percentage of total public expenditure);

Surpasses all countries in having an educational system that meets the needs of a competitive economy; and

Surpasses all countries in computer literacy.

Despite such high credentials, Ireland's cost of payroll (average hourly compensation, including indirect costs, 1994) is less than all of its European counterparts except Spain and Portugal.

Corporate Tax Rate

Finally, of great interest to business is Ireland's corporate tax rate for manufacturing and qualifying services. Ireland offers an inviting 10% corporate tax rate, the lowest in Europe. This will continue until 2010 (and 2005 for financial services). How important is this tax rate? The next lowest rate is found in the United Kingdom, at more than 30%. Germany's corporate tax rate is over 55%.

Businesses Located in Ireland Today

Drawn by these economic and political factors, today's Ireland now is home to top international companies. These companies do business in electronics, engineering, healthcare/pharmaceutical, consumer products, international services and financial services. In electronics, Ireland is home to companies such as: Apple Computer, AST, AT&T, 3Com, Ericsson, Fujitsu Isotec, Gateway 2000, General Electric, Hewlett Packard, IBM, Intel, Motorola, NEC, Philips, Seagate Technology and Sun Microsystems.

For example, Intel has invested $2.5 billion in two semiconductor facilities, and will employ 4,500 people. Chairman Gordon Moore has stated: "The facility in Ireland has worked out even better than we had hoped ... the productivity and quality of the product coming out of there are second to none".

In engineering, Ireland is home to companies such as Alcoa Fujikura, Emerson Electric, General Motors, Kostal, Mitsubishi Belting, Pratt & Whitney, Thermo King and Westinghouse.

In healthcare/pharmaceutical, one finds companies such as Abbot, American Home Products, Baxter, Boston Scientific, Bristol-Meyers Squibb, Eli Lilly, Johnson & Johnson, Merck, Pfizer, Roche and Sandoz.

For example, Abbot and American Home Products each has five operations in Ireland, while Johnson & Johnson and Pfizer has three each. Donald Robinson, Boston Scientific's Director of Corporate Engineering stated, "We looked hard at a number of European locations. What made the difference for Ireland was the infrastructure, the spirit of cooperation here ... and most of all the availability of skilled personnel".

In consumer products, Ireland is home to companies such as Avon Products, Bose, Coca Cola, Huffy, Oral B/Gillette, Rubbermaid and Time Warner. In international services, one finds companies such as Andersen Consulting, CIGNA, EDS, Microsoft, New York Life, Oracle, UPS and Whirlpool. In financial services, Ireland is home to companies such as ABN Amro, Bankers Trust, Chase Manhattan, Korea Exchange Bank, Mellon Bank/Premier, Merrill Lynch, J. Rothschild International and Sanwa.

Accordingly, investors would be well advised to consider Ireland and the countries located there when creating their international portfolios.

Sponsored by James J. Eccleston. This Web site contains material of general interest. It is neither intended to, nor constitutes, either legal advice or investment advice.
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