Still, emerging-market bonds have the potential for outsize yields, even after taxes, which may appeal to investors with a high tolerance for risk. Brazil, for example, with newfound confidence in its economy, offers government bonds denominated in its currency, the real, instead of the U.S. dollar. Because the yields are tied to a surging Brazilian economy rather than to a sluggish dollar, they can be significantly higher than those of U.S. bonds.


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THE OPPORTUNITY IN GLOBAL ALTERNATIVES

Beyond stocks and bonds, alternative investments such as real estate also present international opportunities. In sharp contrast to the beleaguered U.S. real estate market, housing in BRIC countries is poised to expand, creating opportunities in international real estate investment trusts (REITs). According to a recent report from Merrill Lynch Research, “Global Property & BRICs & Mortar: Emerging Market Real Estate,” some 90 BRIC-nation REITs now represent $218 billion in market capitalization, compared with $289 billion for the U.S. in REITs. Opportunities also abound in developed Asian economies. As real estate prices in the U.S. and the U.K. soared by 150% during the past decade, prices across Asia rose by just 15%, leaving ample room for growth.

Other alternative investments, such as certain international hedge funds, could offer advantages, especially as protection against a market decline. A hedge fund may, for example, have the ability to take both long and short positions on European stocks. In January 2008, European markets declined 16%, delivering a significant blow to those investing strictly in European stocks. Yet some long-short hedge funds during the same period declined just 4%, leaving those investors with a shorter road to recovery.
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