Monem Salam:  
Welcome to Halal Money Matters, sponsored by Saturna Capital. I'm Monem Salam. You know, the topic we're going to be talking about today is going to be about international investing. People always talk about international diversification. They talk about why it's important, and especially living in the current times, it's really a better way to understand how your complete asset allocation works with international stocks in them, or funds.

Dan Kim is joining us today. He is a Chartered Financial Analyst and the Director of Research and portfolio manager here at Saturna Capital. He joined us about two years ago, roughly, and has some really extensive experience running his own company called Blackcrane Capital. There he was managing a global investment firm and also he did this right all the way up till when he was joining Saturna. He obtained his bachelor's degree from Cornell University, where he studied operations research and industrial engineering with a concentration in electrical and computer engineering. What a handful. He then attended Cornell Johnson Graduate School of Management, where he earned a master's in financial engineering. I'm really excited to have him on the call. And so let's get started. Welcome Dan.

Dan Kim:  
Thanks for having me, Monem. Great to be here.

Monem Salam:  
Great. So I mean, right off the bat, I kind of talked about in buying my introduction, so maybe we can talk a little bit about the difference between, you know, global investing versus international investing just or just investing in your local country?

Dan Kim:  
Yeah, absolutely. So global equities management, essentially, what it does is it gives the investor or the manager the full spectrum of being able to allocate to US equities as well as international. So you're kind of leaving that allocation decision up to the investment manager. Now, as a US investor, it's called a familiarity bias, but essentially, investors both institutional as well as individual, we tend to have a very large indexing to us North American equities. And so I would say just eyeballing maybe about 10% or even less of normal accounts will even have an international dedicated weighting versus roughly 35, 40% of the global market cap is international, so that's a pretty big misalignment in terms of allocating your wealth accordingly.

Monem Salam:  
So I guess what you're trying to say is that, you know, if you're just investing in regular mutual funds and have just a US exposure, you're really losing out on about 35% opportunities that might be there across the world. So for example, in Europe or in Japan, something along the same right?

Dan Kim:  
Absolutely So because of that over indexing, to start with as a US investor, if you choose to go with a global strategy, then you're kind of double counting yourself, because that global strategy is going to have a pretty big US weighting in itself, so.

Monem Salam:  
Okay, and any international part of it, that just basically means that there's no US exposure at all?

Dan Kim:  
Exactly. That's the benchmark. Although you can give your manager and a lot of active strategies do this, but if there's a very strong opportunity, and it's happens to be in the US, then that international manager has the ability to, you know, on the edges, go off benchmark, and capitalize on those us opportunities as well.

Monem Salam:  
Okay, so then, I guess then the big, I mean, I can understand somebody who's in an emerging market, or maybe somebody who's in Europe, and they want especially exposure to the US because of, like, a lot, a lot of the large cap, you know, companies are here. But why would a US investor want that exposure International?

Dan Kim:  
Yeah, that's a great question. And it, I guess the most obvious topic that's discussed is valuation US equities are simply much more expensive from a sort of apples to apples comparison versus international stocks. Now one can say, well, US equities have always been at a premium to international stocks, and that's valid, but if you look at a historical time series of this data, we're pretty much near record levels in terms of this premium. I mean us, equities were at one point on par, so equivalent in terms of valuation to international stocks. But right now, as of the end of June, this premium has gotten as high as 62% I wrote an actual an article on international equities about a year and a half ago, and at that point it was, it was really high at 45% but it's just gone straight up since then. And it got to a high of roughly 778, 79% earlier in the year, and so it's actually come down quite a bit. That's part of the reason why international stocks have outperformed significantly. It's us peers, but essentially, if you're only investing in US stocks, of course, we have very high quality companies here. But why would you choose to restrict. Your investment opportunity set. If you allow your manager to have the global universe of equities and really just cherry pick the top names in the US as well as globally, you're just giving that investment manager the ability to have a larger, full opportunity set of stocks to work with. And you know, of course, we have fantastic companies here, but there are fantastic world class category leaders in the international markets as well. And generally speaking, of course, every case is different. You can get these world class companies at a significant discount to very similar exposed companies here in the US.

Monem Salam:  
Let's talk a little bit more about, you know, in the current environment, as you mentioned, you know, although it's only been six months, the international markets have significantly outperformed the US. Part of that has to do with Trump's announcements on trade, the things that are going on in the US. Kind of talked a little bit about why you think over the next, late, next five or 10 years, that you do feel the international markets, or ex-US markets are going to do better?

Dan Kim:  
Yeah, well, you know, certainly from a currency perspective, you mentioned this, but the dollar, through a lot of these actions, these measures that have been taken pretty deliberately, the dollar is down something like eight and a half percent year to date, and that's a significant move. So, you know, if you're a government that holds a lot of us denominated debt, you know, every percentage point of this devaluation can actually make a meaningful impact on your you know, fiscal deficit and your debt holdings. So this is, this is quite positive for those scenarios. Now, I would qualify my statement of this enthusiasm for international markets slightly in that I think it's more important than ever if you want to have international exposure to be active in your investment strategy, because international markets economies, they have a ton of positives and pros, such as valuation, being able to capitalize on world class companies. But there is a flip side where, yeah, I think ex-US growth has been lagging and will probably continue to lag if you just get a broad sort of index exposure of the entire markets. And so I think it's more important outside of the US to be able to really be able to pick and choose which sectors, which types of companies, what countries you're going to choose to get into. But you know, if you have that ability, again, you can match the same caliber of quality of companies. You can generally get stronger earnings growth, and you can get a discount relative to very similarly exposed peers in the US. That's why I, you know, even over a long term period and quite positive on active exposure in the international markets. Again, from a currency perspective through you know, whether it's deliberate or policy driven or not, I think the current administration is quite happy having a very weak currency in. They're not taking direct intervention actions, but certainly through the measures that they've been taking with, with tariffs, with that sort of aggressive stance against certain countries. From an economic perspective, it is having an impact on the dollar.

Monem Salam:  
I think Trump actually has said a few times that he'd like to see the dollar weaker than it is right now. So he's basically forecasting what exactly wants to do over the next three or four years.

Dan Kim:  
So he's basically, in a way, intervening without directly intervening, by causing all this volatility and chaos in the markets. And he's kind of getting what he wanted anyways, because a weak US dollar, it's actually quite positive from an economic perspective. And it's actually something I don't think enough investors are talking about, but, but I call it export elasticity. And what I mean by that is, you know, for every percentage point that your currency weakens, like the dollar weakens, not all US exports are made the same. You know, there's the standard sort of physical manufactured products. There are services. So US has like a, like a $300 billion service export surplus. And then there's technology exports. And so it turns out, which obviously the US has a heavy exposure to, so technology exports for every unit of decrease, the elasticity is actually like 1.4 to two services that sensitivity is 1.2 to about 1.5 and the least impacted is this sort of physically manufactured products, which is, I think it's like a quarter or less of all of the US is exports. And so essentially, what I'm saying is, for every percentage point of us depreciation, you're getting a much bigger bang for the buck in terms of services and this technology that we export to other countries. And so I think that's, that's kind of why, that's what's kind of contributing to this resilience, and I would imagine the administration is looking at this, and again, doesn't mind at all with, with this depreciation, and they probably are, would be happy for another, you know, leg down, which is, I think, what Morgan Stanley is predicting.

Monem Salam:  
Yeah. So, okay, so let's kind of break that down a little bit further. We are talking about the differences in currencies. And so, you know, for, if you have, you know, if the currency is depreciating or as a Trump wants president, Trump wants it to be then basically, on your everyday purchase that that you have, you might not see any difference there. But if you had, for example, a holding of an international stock, let's suppose in Europe or in Japan, and you know, for every let's say one percentage point the dollar depreciates, you're actually making one percentage points higher on whatever their turn is, on the on the reverse currency correct?

Dan Kim:  
Exactly. So you just get the immediate benefit from that depreciation with a, you know, presidential administration that's very happy to see that depreciation, which benefits you as an international investor, and will probably continue to have this, this stance. So it's you're kind of in a good spot from a currency perspective and from just a global economic perspective, as long as you're not picking the companies that are exporting a ton of manufactured goods in the into the US, which, you know, there's a lot of So this, again, this is why it's important to be active. You can really sort of scalp your way into strong returns.

Monem Salam:  
And the other part of this is, but you can also get exposure to international by investing in US companies the large caps usually are doing a lot of exporting, and those type of things. Are you saying that there's not, it's not a one, one to one ratio of how much benefit there is.

Dan Kim:  
Yeah, that's a great point. And so you're absolutely right. We've got very large multi national company companies in the US that do a lot of exporting. The one thing to keep in mind is that even though technically, a lot of the revenues may be categorized to go overseas. Maybe it's greater China, Europe, the actual end demand component of where that good that you ship, sort of on an intermediary basis to perhaps even China ends up, tends to be, in a lot of cases, the US. So it looks like you're getting that sort of overseas exposure, but in the end, what you're getting is just US consumption of that finished product after that intermediary country, like a Singapore or Vietnam or even China, will sort of value add upon that and then ship back to the US.

Monem Salam:  
You talked about higher valuations in the US than in other parts of the world, and also at one point in time, probably, I would venture to guess it was basically in the 2000s that they were almost at parity. The valuations were a parody. And so I don't think it's not, it's not that the companies in Europe or other places haven't grown. It's just the US has grown faster over the past 15 or 20 years, for example, why do you think that trend is not going to continue?

Dan Kim:  
Yeah, you know what? I think, I think it does continue, to be perfectly honest. So I'm not negative on US equities. I like US equities a lot. But you know, from a relative standpoint, it's absolutely beneficial to diversify your assets and wealth outside the US, and especially if you have the ability to not just buy like a blanket strategy that you're just getting all the exposures good and bad with this ex US economy, which I think is probably going to continue to grow at a slower pace, just because they mean there are some structural issues, but then there are some investment related issues. There's demographic issues that all combine to probably a slower trajectory than the US. But does it justify, you know, 62% premium valuation? I don't think so. I think from a currency standpoint, you're in a favorable starting point, at least from a valuation standpoint, I mean, we're basically at record highs. It's extremely compelling. And then from just an innovation catch up standpoint, the US has been just printing out all of this innovation. They've been reinvesting. Their productivity is top notch right now, and it probably continues to chug along. But if you're in a country that that has a demographic problem, especially like maybe Japan or even Europe, and then you have a huge productivity boost from Ai, from virtual, you know, software agents that it can essentially replicate human labor those countries that have had this chronic structural shortage of labor. I mean, they're probably going to stand to benefit the most. On a relative basis, everyone's going to benefit. The US is going to benefit, but the US is already starting at a point of pretty good efficiency and productivity, whereas it's been a big problem for Western Europe and Japan and Korea, even China. So from a from a relative net, net standpoint, the sort of velocity of that improvement, there is a strong case to be made that international markets have a much better ability to generate that delta, that difference in terms of growth differential.

Monem Salam:  
That's a really good point. And then so this is not the first time, by the way, I had you on a podcast, because we actually did a webinar together, and then we put that into a podcast. And there were certain things that we were talking about. This happened right after Trump had announced his tariff plans and those things. So there are, as we mentioned, a few of the things that are causing the dollar to depreciate relative to other currencies. We talked a little bit about the strategy of Trump to be able to come out and say he wants to lower Dauer but the other. One the other two, I wanted to focus on. Number one is going to be just our, our debt and our and the deficit that we keep running every single year. How does that play into dollar weakness or dollar strength?

Dan Kim:  
Yeah, well, I think it's, it's been playing straight into the dollar weakness that that we've seen. And, you know, it's kind of day by day, but I don't think that that narrative is is going to change in a meaningful way, and at least in the foreseeable future, partially because the administration doesn't mind a weak dollar at all, and they probably don't mind it getting weaker, as mentioned. And this, this, this big bill that apparently has passed in the Senate today, again, I leave the calculations up to the experts in terms of what it's going to do to the budget. But you know, clearly the markets are expressing themselves in a way that that leads to sort of a weakened fiscal debt situation, and directly translating into a weaker dollar. And again, we have to remember, with these tariffs, these tariffs, again, I don't know how it's exactly going to play out. Some people say, you know, the producers, like, like, you know, companies in China are going to take all of the brunt of the tariffs, and they're just going to eat it, and we're not going to experience anything, you know, other people will say they're just going to pass all that price increase, that tariff on to the US. And so, you know, the answer is probably somewhere in the middle, but there's, there's going to be some impact. Someone has to eat it. And it's going to differ by product. If it's high in demand, then probably the consumer is going to eat it. If it's like very commoditized, then probably the producer eats it. But whatever happens, we're going to eat it in some extent. But then again, with this, this decline of eight plus percent in the currency. I mean, think about it, is that there's a tariff that slapped on what we import, and our dollar is, you know, eight, 9% weaker. So that's like a double whammy that we're experiencing right now. And so it's definitely kind of that we're taking the pain up front. And so I'm kind of cringing and hoping that that it's not too bad eventually it's going to lead to a very nice sort of shift in terms of the trade dynamics, in terms of our deficit, as I mentioned, we're heavily exposed to these very elastic areas like technology and exports that we export, and that's going to be fantastic for those companies revenues, but, but that's kind of in the medium term, the short term. It is kind of scary. And so I think, I think markets, FX, traders, institutions, are kind of showing where they stand right now. It's leading to sort of this weaker dollar every day, type of news flow. I don't think that shifts around again over the medium term. If us, growth turns out to be much better than expected because of this, you know, juicing impact from currency as well as, I mean, it's a big bill. I mean, it's, it's really stimulative, right? So, so there is a positive to just pumping, you know, three, over 3 trillion of deficit for us to worry about later. But in the meantime, it is, it is a economic stimulus, for sure. And so, you know, the one, you know, Savior, potentially could be, perhaps meaningfully better than expected economic activity.

Monem Salam:  
But that's more, I think, in the short term, because it's a short term boost, right in the long term, as the debt gets bigger, there's really, what I see is only two ways you can actually get yourself the debt down. Number one is you cut the spending, which we've clearly seen from this bill. That's never and that's not going to happen. It's very, very difficult to do politically. Sometimes people call it political suicide if you think you're going to be cutting spending in your own district. But the other way, which is people sometimes don't realize, is you can, you can depreciate the dollar out of your, out of your out of your debt, or inflate yourself out of it, right? You, you make the debt worth less than it is, it definitely is now, or you lower the interest rates to a point. That's why Trump's been talking about the Fed lowering rates, or trying to push towards that. And if you do that, then, then you have more inflation. Inflation leads to a weaker currency. And that's, that's, that's one of the reasons I think that that Trump does want to have a lower, lower dollar. Feel free to disagree if you do.

Dan Kim:  
No, that makes perfect sense. And again, kind of just monitoring what policy actions are being taken, that seems to be the path.

Monem Salam:  
Yeah. So now, now I know you do manage an international fund, and so tell me a little bit about what, where you're seeing opportunities. Is it geographical? Is it more sectoral based where what are you seeing?

Dan Kim:  
Yeah, so I I'm finding value without again, having to sacrifice quality. Of course. This, this AI thematic, has gone bonkers over the past, sort of 18, 24, months, starting with the sort of, you know, who the who's who in the US, largest sort of seven to eight stock market. And so those stocks have gotten all the spotlights. And then it's, it's rippled over into the AI derivative plays like in terms of industrials and even things like utilities have taken off. But a similar phenomenon is happening overseas, but it's just a bit more delayed, and it's definitely not receiving the same sort of spotlights that that the US is, you know, I mentioned, you know, SAP versus service now, but in other areas, one, one area I'm looking at in particular is within the AI data center, you can have blazing fast chips and blazing Fast networking equipment. So I'm referring to Nvidia makes the GPUs, and now Broadcom is making the Asics, sort of accelerators as well, which is kind of comparable. But then you have your networking chips and infrastructure, which Broadcom, of course, also participates in. But then you need the wiring and the cabling to allow this data to essentially be transferred, and if you don't have that capacity, then it doesn't really matter how blazing faster your GPUs and networking chips are, it's just not going to be possible. Either there's too much heat or it's just there's too much decayance of the signal. I don't want to get too technical here, but essentially, there are companies, one in particular, in Japan, that actually dominates the this, this optical fiber cabling market. They got like a 40% market share. And essentially these newest AI data centers. It's no longer a super nice to have. It's an absolute must have, or else you can't really scale up to these, you know, fastest speeds and networking architecture and so, you know, this is a company that's trading at 21 times, going to 18 times, versus, you know, us peers are trading in the 40 to 50 to 60 times earnings range. And again, I'm not sacrificing these guys have 40% I mean, they pretty much own the market in an oligopoly, and they're really the one of the most exciting bottlenecks in this whole AI thematics. This is not an AI derivative. This is actually an AI accelerant, which is actually allowing this thematic to actually move along and accelerate.

Monem Salam:  
Are you usually demographic? I mean, they could look at regions of the world, world, whether it be Europe or Asia versus South America. So are there some likes and dislikes that you that you have?

Dan Kim:  
Well, I'm pretty agnostic when it comes to, you know, countries or regional exposures. You know, for the longest time, the like, Japanese economy was, was, like, the worst possible, you know, economic region on the planet. And I, like, most of my portfolio was, was in Japan, because I didn't really care. I mean, as long as I was finding, you know, very unique, idiosyncratic companies that then had their own story going on, that that had a nice, you know, double digit trajectory on top line with a sort of secular tailwind elsewhere, it didn't really matter. Right now, I am focused probably more on the sort of infrastructure, AI industrial space, just because I'm finding more of those types of names fit into my sort of investment architecture. But from a regional standpoint, I do like what has happened in Japan. I think Korea is probably going to go through a similar sort of transformation. It's probably not going to be an overnight thing, but those are a couple areas I like, I do, like parts of Europe. I think the region probably has some upside in terms of more stability, hopefully going forward, and a reinvestment cycle that that has just kind of been lacking for the last 15 years, especially after the European debt turmoil that we saw in the sort of early 2000 10s. I think there's some significant exposure there. And again, not to harp on tech, but you know, not because they've done a fantastic job, but because they've under invested, because they've not sort of migrated to the cloud like the US peers were doing that now they need to accelerate. If you want to roll out AI, you need to first reconstruct, digitalize your infrastructure to the cloud so that you can properly take advantage of AI.

Monem Salam:  
So, I mean, we've been very so far, been fairly positive about, you know, investing internationally and talking about this. What do you see as some of the risks of an investor putting money abroad?

Dan Kim:  
Yeah, no, big time. It's there are plenty of risks. And again, this is why, I don't know if I would just put my money in a broad index having exposure to all of the European and global economies. Because, again, these structural issues with Europe, China, Japan, Korea, huge demographic issues, and it's probably going to get worse over the next decade. Shortages in skilled labor is pretty bad. In Europe, there's been a under investment cycle in infrastructure and in technology and innovation in Europe. Again, over the last 1015, years, China has had a massive, I mean, their property market just blew up like really badly about a year and a half ago. It looks like it's stabilizing, but, but it's, it's a bit of a hole they need to dig out of. And so I think youth unemployment there is, is, it's in the upper teens. It's, it's quite bad there. So, and these aren't issues that can just kind of flip on a dime and recover. So they're, they're definitely starting at a difficult spot to be able to, you know, quickly, catch up to other peers. So, you know, those are definite risks that I see. It's great to see, hopefully, a more sort of calm Middle East environment from a geopolitical standpoint, but again, I mean, there's a ton of negative geopolitical uncertainty that seems to just not really want to go down at all. And so who knows, time will tell what happens. But there can definitely be casualties from all this. And you know, some economies are just, are not as equipped. They're not in in a strong economic positioning to be able to withstand the storm.

Monem Salam:  
So now, I mean, I know you manage a fund, which is the, it's a conventional International fund, as a Muslim investor. Investor, or an investor who wants to have a portfolio line with Islamic principles. How do they get access to the international markets?

Dan Kim:  
Yeah, I think international markets is actually a great playing field for Halal investors in terms of looking for companies that don't take a lot of debt. They're not speculative, high quality, high cash flows. I mean, this is kind of the DNA of what we go for, you know, as a firm, investment firm itself, you know, not only for, for the whole dedicated strategies, but from an overall DNA perspective. So, you know, I know there's a ton of US stocks and companies that have these characteristics, but from an international setting, again, because we don't need to really sacrifice quality, we're able to have more than enough of a candidate pool of a universe to be able to deploy This and actually differentiate even more relative to a lot of other companies and constituents in these overseas markets, relative to the US. And this is this is partially why, back to the active versus passive theme, active managers internationally have consistently been able to outperform the broader markets, and that hasn't really been the case for us, equity active managers. It's been much more difficult for them, and that's really just a reflection of there's just greater uncertainty as well as international markets are just less efficient. I don't want to say anything negative, but they're just simply not covered as closely with as much rigor and really eyeballs as their US peers. And so that generally tends to situations where there are just more mistakes in terms of analyst projections on things like top line revenues, operating margin forecasts that collectively lead to these, you know, bigger, more juicier opportunities from an international standpoint.

Monem Salam:  
Well, great. Thank you so much, Dan, for your time. Is there any kind of final thoughts you want to share with us before, before we close it off?

Dan Kim:  
I think we covered a lot. Thank you for that. You know, I like to take a step back and just think about what I'm doing with my wealth. You know, I generally think people should have international, global exposure, because if you spend a single dollar on anything, chances are that's going to have some international component to it.    So in a way, you're really hedging yourself from a, you know, total wealth perspective. That's another way to, you know, take it, take a step back, and kind of look at it from a different perspective.

Monem Salam:  
Well, Dan, thank you so much for your time. I really appreciate you taking and explaining to our listeners about international investing in the benefits and the risks there.

Dan Kim:  
The pleasure was all mine. Thank you for having me. Great to be here.

Monem Salam:  
Thank you. Thank you for listening to Halal money matters. If you like what you hear, please do rate us on the app stores and also leave us a review. It helps other people find us a lot easier.

Disclosures read by narrator:
The thoughts and opinions expressed on Halal Money Matters do not necessarily reflect the views of Saturna Capital, Amana Mutual Funds, or their affiliates. This podcast is prepared based on information Saturna Capital deems reliable; however, Saturna Capital does not warrant the accuracy or completeness of the information. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. Investors should not assume that investments in the securities and/or sectors described were or will be profitable. Investors should consult with a financial adviser prior to making an investment decision. The views and information discussed in this commentary are at a specific point in time, are subject to change, and may not reflect the views of the firm as a whole. All material presented in this publication, unless specifically indicated otherwise, is under copyright to Saturna. No part of this publication may be altered in any way, copied, or distributed without the prior express written permission of Saturna Capital.

Performance data quoted herein represents past performance and is no guarantee of future results. Investment return and principal value of an investment will fluctuate so that an Investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be significantly higher or lower than data quoted herein. Performance current to the most recent month-end can be obtained by visiting www.amanafunds.com or by calling toll-free 1-800-728-8762. Please consider an investment’s objectives, risks, charges and expenses carefully before investing. To obtain this and other important information, which you should carefully consider before investing, about the Amana Funds in a free prospectus or summary prospectus, please visit www.amanafunds.com or call 1-800-728-8762. The Amana Funds limit the securities they purchase to those consistent with Islamic principles. This limits opportunities and may affect performance. The Amana Funds are distributed by Saturna Brokerage Services, member FINRA/SIPC and a wholly-owned subsidiary of Saturna Capital, investment adviser to the Amana Funds.