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By Yiannis G. Mostrous

MCLEAN, Va.–I’ve just landed after a transatlantic flight and haven’t had a lot of time to adjust. But my view remains quite upbeat–the onset of the usually weak month of September notwithstanding.

As I noted last week, Italy could surprise to the upside during the remainder of 2006. I’m finishing my assessment of the market and economy and plan to provide recommendations next week. As Europe is a better value at these levels versus the US and will outperform through the end of the year, increased exposure to the European Union market seems warranted.

I’ve also been looking around the South Korean market; it seems there’s value to be found there, too. Though Korea doesn’t offer a particularly exciting investment story at this point in time, local investors have been increasing their market exposure through long-term 401(k)-like accounts. These developments should prove to be supportive in the event of a slowdown.

SRI Portfolio holding Shinhan Financial is a good way to gain exposure to Korea, but I’m looking to add a more defensive stock. I’ll include my recommendation in a coming issue.

Foreign Fundamentals

SRI was created with the individual investor in mind. Unfortunately, US-based investors have for years been deprived of overseas investing opportunities. They’ve been forced to gain foreign exposure through American Depositary Receipts (ADRs), which are liquid, or by trading in the over-the-counter (OTC) market, where liquidity is often a problem. The SRI Portfolio has been constructed in such a way as to limit OTC stocks, but the OTC listings I do recommend have decent trading volume.

This advisory is obviously global in nature, rooted in the fact that some of the best investment plays involve taking advantage of the huge economic changes taking place outside the US. What’s important for present purposes is that most of these stocks don’t even trade in the US. They trade in Asia (naturally), but also in Europe. Many of the Asian equities I like trade actively on exchanges in Germany, the United Kingdom and France. To enjoy the full benefit of Asian boom, it’s useful to have access to these European markets, at the very least.

US-based brokers, having realized that investors are getting fed up, have begun to expand their services. Some now offer easy access to foreign markets. Investors can increasingly participate in overseas markets by buying shares on local exchanges for a reasonable fee.

One broker I’ve highlighted in the past is Interactive Brokers. The trading platform is designed for active traders and takes a little while to learn, but Interactive offers dirt-cheap commissions for trading US, Canadian, European and Japanese stocks. It also has a great system for handling currencies; you can choose to convert all or part of your account into British pounds sterling or euros to handle buys in Europe at favorable rates.

A more mainstream broker that can now handle some international trading online is E*TRADE. Commissions are slightly higher, but the Web site is particularly easy to use and includes solid news and quote feeds for most foreign markets.

According to a recent article by the Wall Street Journal, Fidelity has seen a fourfold increase in customer requests for international stock purchases. As a result, its beefed up its customer service staff to handle the transactions. You can handle purchases of foreign stocks through Fidelity by calling the broker directly.

This is by no means an exhaustive list. If you’ve had positive experiences buying foreign stocks with other brokers, please drop me an e-mail and I’ll include them in an upcoming issue. And if you plan on getting into some of my non-US traded stocks, be sure to check out your current broker’s capabilities.

I haven’t yet decided whether to include stocks that don’t trade in the US but can be purchased through a US-based broker in the Portfolio. At the very least, I’ll feel more comfortable recommending these investments if I know readers have taken steps to open accounts with capable brokers. Look into the matter; the profits will be far superior.

Take action.

A Note To Readers

As the number of SRI subscribers has increased of late, I’ve received many questions about portfolio construction and stock selection. Allow me to reiterate an explanation from prior issues:
The approach here is top-down. I first identify long-term investment themes (or, as my colleagues and I call them, global secular trends). Because of the long-term approach, the Portfolio must be able to endure short-term volatility as long as we continue to be on the correct side of the global secular trend. To achieve this, the Portfolio is being constructed to offer a diversified set of holdings, while I also offer hedging ideas for more complete advice.

A characteristic common to the Portfolio companies is suitability for the new realities of a changing world. They’ll benefit the most from the changes taking place in the global economy.

No one knows how long it will take for the global economy to navigate the secular trend identified here. This is the reason investors need to remain focused and have a portfolio that can last and perform well on a tactical basis. After all, the way to stay in the game is by not losing all the money, and tactical mistakes can cause that. This is the main reason I won’t put convictions above analysis and will avoid suggesting only one type of attitude or trade, especially short-only strategies.

It’s important that you look at the Portfolio as a whole and not as an assortment of stock tips. Although few people will buy the Portfolio in its entirety, you, at the very least, need to buy SRI’s investment theme in order to diversify. Buying only banks or tech companies because you like the stories might offer a reward, but such an approach won’t provide the lasting benefits of the overall Portfolio.

Keep in mind that SRI comes to you weekly and always offers current advice. Adding and subtracting stocks from the Portfolio can be done more easily this way. There’s always another week, and neither readers nor the editor need to rush. Patience has always been a good thing to have when investing.