the move to Europe

Increasing numbers of US-oriented equity investors are announcing that they’re shifting assets away from the US toward the EU.  Actually, while managers may phrase their statements as intentions, no one is going to reveal plans they have yet to carry out, so we should figure that the announcer have already done the lion’s share of their buying.  Now they wouldn’t mind if other follow their lead.

The rationale for doing so is clear:  US stocks are pricy, the EU is not; and the EU is arguably following on the same general economic trajectory as North America, only with a two-year lag.  If so, buyers get the equivalent of 2013 prices.

The move isn’t without risks, however.  While it does appear that Grexit is already in the rear view mirror–and, admittedly, I’ve been arguing that losing Greece as a member would be a speed bump for the EU, not a catastrophe–there’s some chance worries will resurface later in the year.

The main issue for investors as I see it, however, is a tactical one–how to play the euro.  Here’s where I genuinely don’t know–and why I hesitate to make the load-up-on-the-EU move myself.

Two choices:

–figure that the EU will remain in economic intensive care and that the euro will therefore remain weak.  This implies buying EU-based multinationals with hefty US exposure.  In euros their earnings will look great   …and EU portfolio managers will tilt their portfolios in this direction.  Multinationals have clearly been the way to go since the EU began to slow down last summer.   The problem with this is that the idea may be getting pretty long in the tooth

–figure that the dollar-earners are all played out and buy the next logical development–the revival of the domestic EU economy.  This would mean buying purely domestic firms.  They will do well if the euro begins to strengthen against the greenback and/or if the EU starts to show relative economic strength.

I’m still on the fence.

I have 5%-10% of my IRA/401k money in actively managed Vanguard Europe mutual funds.  That’s a more or less permanent position–meaning I haven’t changed the allocation in years.  A month or two ago I added shares of IHG to my actively managed taxable account.  I’d held IHG for a long while and sold in the middle of last year.  I’ve recently become more enthusiastic about hotels–I added MAR at the same time–and also wanted to added dollar earners based in Europe.

That’s it.

Intellectually, I think adding domestic EU exposure is the right step.  I just can’t bring myself to pull the trigger.

Instead, I’ve stuck with looking for tech/Millennial exposure in the US.  I guess I think it’s too soon.

Any thoughts?

One response

  1. You’ve made the argument on the Millennial exposure before. It is a good one.

    Nice infographic (very millennial!)

    http://www.goldmansachs.com/our-thinking/outlook/millennials/index.html

    And disclosure, I’m not a Millennial.

    But as I said earlier I worry if the big gains on ME are already baked in. Apple. Chiptole. Monster Beverage. Facebook. Whole Foods. Netflix. even something like Restoration Hardware.

    No question uber, although the conta-revene coupons are a bid hidden story. But not in public markets. AirBnB. Tinder. Sweetgreen.

    And there was a study today on Europeans — basically not settling down and getting married until 50? (children before marriage). Could nullfy the entire theory, no?

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