While U.S. companies dominate many industries, in others, international companies are dominant. For example, in the consumer staples sector, Europe is home to many of the most well-known global businesses in the world. Companies like Unilever, Nestle and Anheuser-Busch InBev not only dominate their home markets, but also have larger exposure to faster-growing emerging markets than their U.S.-listed peers.
Within emerging markets, high-performing, consumer-oriented companies such as Walmex, the largest retailer in Mexico and Central America, provide investors with exposure to a higher growth opportunity, as well as good management and corporate governance. Walmex's growth comes from market consolidation and increasing income per capita in Mexican households. Its stock has outperformed shares of its parent company, Walmart, by 230% during the past 20 years.
Some of the best-performing stocks in the consumer discretionary and industrials sectors are also located outside of the U.S. If you enjoy a fine champagne, fashionable purse or stylish watch, you are probably a customer of one of the global luxury companies based in Europe, such as LVMH, Hermes and Richemont. And every time you board an airplane, it is most likely powered by an engine manufactured by a European company, such as Safran, Rolls-Royce or MTU Aero Engines.
Banking is another industry moving at a very different speed in international markets. For example, HDFC Bank in India ranks as one of the top global banks in terms of earnings growth and profitability. In the last decade, HDFC Bank's earnings compounded at 23% a year (in U.S. dollars) compared to a quite respectable 9% for U.S. bank Wells Fargo. While developed market banks continue to struggle for loan growth in general, HDFC Bank has averaged loan growth above 20% for many years as India's middle class swells and millions move into formal banking for the first time.
Not only can investors find better performing companies in international markets, but the gap in performance of the overall universe is wider in international markets than in the U.S., meaning that international markets are less homogenous in terms of quality. This creates more opportunity to capture alpha with active stock picking in international markets.