My portfolio has always been U.S. based, but Jeff has an internationalist outlook and owns many non-U.S. stocks.
With the USD strongest since 2002, is this a good time to buy non-U.S. stocks?
Wendy
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Wendy,
the relationship between the underlying currency of a company and the value of its stock are theoretically of no importance. That said, if the value of a company, peering through a USD lens, is negatively impacted by their sales/profits appearing lower because thee currency they are associated with has dropped in value, their price in terms of USD should go down.
Given the perception of uncertainty of the European business environment due to the Russo/Ukrainian war, inflation, global warming, nomadic asylum seekers etc., it is my feeling that many fine companies have been (and likely will be) punished in excess of the actual risks. At some point, supply channels will become untangled, the Chinese stalemate regarding COVID will solve itself (likely with mandatory vaccinations) and, despite the likelihood of both the US and the EU entering recessionary periods, there are numerous European companies who sell internationally in parallel with US firms but whose shares are selling for far less than their US peers.
When choosing ADR’s it is important to understand if they are “sponsored” by the firm itself or a vehicle conjured up by a US bank. Also OTC symbols which end in the letter “Y” are valued in US dollars and frequently more liquid in the US, but those ending in “F” are valued in the foreign currency and represent the actual native shares.
If comparing individual stocks, try to compare apples to apples (no pun intended) as much as possible:
Nestle vs. Kraft
BP vs. Exxon
Banco Santander vs. JP Morgan
Phillips and Siemen vs. GE and Emerson
Unilever vs. Proctor and Gamble
Novartis vs. Pfizer
The list of both parallels as well as unique companies is quite long.
The point is that you are buying a business and you are valuing it in terms of USD. Compare which is the better value and buy it. The caveat is that if the underlying currency begins to do a death spiral a la the Argentina peso, even a strong company can crack from the effort to stay afloat as its host nation tears it apart with excess taxation. Also, $hit occasionally happens (like my “valueless” position in Lukoil stock) - but that’s what makes the game exciting.
Jeff
2 Likes
Wendy,
There is a mixed answer to that.
We have more opportunities.
Buy yield.
Better opportunities are possibly in the offing.
For what it’s worth, the majority of my portfolio consists of companies headquartered ouside of the US
Jeff
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I’d be real wary of European companies, especially with major operations in Germany and winter approaches and Russia doesn’t supply NG. Industries across the board will be shut down. Power will be rationed.
Rest of EU might be affected by that, too, as it is big home market for them.
China? No thanks.
India? Probably OK…they are buying discount Russian oil…
Many EU companies shut down operations in Russia- wrote them off - a good source for revenues and profits - gone. BP for one.
t
With the USD strongest since 2002, is this a good time to buy non-U.S. stocks?
Europe will do worse economically than the US. Emerging market economies also have higher betas and so would go down more. If you don’t think it is a good time to buy stock in US companies then you should “don’t think” twice about outside the US.
DB2
With the USD strongest since 2002, is this a good time to buy non-U.S. stocks?
It depends more on the quality of the good you buy than on the quality of the money you use unless you are a money arbitrageur.
The Captain
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Thank you for recommending this post to our Best of feature.
For what it’s worth, the majority of my portfolio consists of companies headquartered ouside of the US
Jeff
Me too, all 13 positions are Canadian dividend payers and in two TFSA (Tax Free Savings Accounts). Banks, pipelines and power companies along with a couple of fossil fuel (oil and Nat gas) producers.
I’m fully retired on pensions and recently stopped contributing to the investment accounts when I reached my target total sum in the accounts.
Now what to do with the money?
Tim
OT - One guy decided to make a statement … probably should have said “I’m Stupid”? The Cops got a nasty rap from the occupation and are looking for revenge.
Tim
https://www.msn.com/en-ca/news/canada/over-1-000-in-fines-is…
Over $1,000 in fines issued after truck covered in “Freedom Convoy” imagery drives onto Wellington
Matthew Lapierre - Yesterday 7:06 p.m
From the article:
Wellington Street has been blocked to most traffic since late February, when police cleared “Freedom Convoy” participants who had camped out and parked vehicles along the street in protest of COVID-19 vaccine mandate.
The street is currently under the purview of the City of Ottawa, but a parliamentary committee is mulling expanding the parliamentary precinct to include Wellington and nearby Sparks Street.
Larry Brookson, head of the Parliamentary Protective Service, told MPs last month that he believed Wellington Street ought to remain closed and should have strong barriers preventing vehicles from entering it.
So, they were all upset that protesting truckers made the street unusable for a few days, and their proposed response is to keep it unusable permanently…
So, they were all upset that protesting truckers made the street unusable for a few days, and their proposed response is to keep it unusable permanently…
My guess is that they realized that keeping that street open presented an inviting target for unhinged people, and for security reasons some want to close it.
Not unlike the portion of Pennsylvania Avenue which was closed (permanently) after 9/11, or other streets which have been closed due to security concerns. I note that some streets in D.C. were closed for months, even years at a time in recent memory, and others around the country have been re=engineered because of the possibility of political terrorism nearby.
Not really a surprise. Sometimes it’s better to wake up before the bomb blast than after.
9 Likes
So, they were all upset that protesting truckers made the street unusable for a few days, and their proposed response is to keep it unusable permanently…
Parliament needs to protect itself from “We the Canucks!” And you though that only happened with nasty meanies…
The Captain
So, they were all upset that protesting truckers made the street unusable for a few days, and their proposed response is to keep it unusable permanently…
Do the oil and auto industries pay you per post or are you on a salary?
Suggesting that the only use a street has is for cars and trucks is very short sighted.
But that is a problem your side seems to suffer quite a bit.
Mark
2 Likes
is this a good time to buy non-U.S. stocks?
I will first preface this by saying you also should consider the tax implications of ordinary dividends vs qualified dividends. Many international investments will generate ordinary dividends.
Regardless of the timing, your after tax return is what is most important and paying more in taxes means you of course have lower return.
I’ve been following the MSCI EAFE for a number of years and I don’t think right now as quite the time to get into intl. It has lagged the S&P performance YTD, (-20% vs -18), rolling 1 yr (-14 vs -10) 2021 (11 vs 28), 2020 (15 vs 18), 3yr (7 vs 11), etc. In fact, the EFA is negative over the last five years while the S&P is up 50%. EFA is barely positive over the last ten.
But wait, it gets better. The S&P PE ratio is much better than EFA too (16 vs 23).
I would want to see that trend be broken, for at least the better part of a year, before international as a category would make sense. Of course, individual investments are different but as a market (macro), intl really sucks compared to the US.
6 Likes
But wait, it gets better. The S&P PE ratio is much better than EFA too (16 vs 23).
Here’s a Vanguard comparison:
https://personal.vanguard.com/us/funds/vanguard/compare?navi…
Trailing PE as of 6/30/22
VTI (US) 17.7
VXUS (International) 11.1
International price to book is half the US, but has half the earnings growth, and much lower return on equity.
International looks cheaper, but reasons.
1 Like
Here’s a Vanguard comparison:
https://personal.vanguard.com/us/funds/vanguard/compare?navi……
Trailing PE as of 6/30/22
VTI (US) 17.7
VXUS (International) 11.1
VTI isn’t the same as the S&P500 (VOO)
VXUS isn’t the same as EFA (Vanguard does not appear to have a pure EFA). VXUS also includes emerging markets - might be why the lower P/E ratio. shrug
https://finance.yahoo.com/quote/EFA?p=EFA&.tsrc=fin-srch…
I recall a conversation I had with my boss back in 2019 about why I don’t favor international investments for my clients. I shared with her the longer term under performance of international investments. Her response, in 2019, was similar - the P/E ratio for international was about 60% the P/E ratio of the US. My response to was similar to now - that I want to see a reversal in the growing gap of US performance versus international. Since at least 2018, that gap has only grown.
Footnote: VXUS since inception (2011) has a rate of return of just 3.25% (about the same as a corporate bond fund of the last ten years). VOO averaged roughly 13% over the same period. I can stay wrong (and ahead) in VOO for a LONG time while VXUS reverses that trend.
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VTI isn’t the same as the S&P500 (VOO)
VXUS isn’t the same as EFA (Vanguard does not appear to have a pure EFA). VXUS also includes emerging markets - might be why the lower P/E ratio. shrug
https://finance.yahoo.com/quote/EFA?p=EFA&.tsrc=fin-srch……
Yahoo data is garbage.
iShares EFA PE from Yahaoo 22.95
iShares EFA PE from iShares 12.75
https://www.ishares.com/us/products/239623/ishares-msci-eafe…
VOO PE 18.5 (from Vanguard)
(Vanguard VEA is a close equivalent to EFA).
I recall a conversation I had with my boss back in 2019 about why I don’t favor international investments for my clients. I shared with her the longer term under performance of international investments. Her response, in 2019, was similar - the P/E ratio for international was about 60% the P/E ratio of the US. My response to was similar to now - that I want to see a reversal in the growing gap of US performance versus international. Since at least 2018, that gap has only grown.
True. The Bogleheads endlessly fight over this. Over the long, long term some claim US/international performance parity, and that excluding international now is recency bias.
I do a bit of international as a hedge against things going pear shaped in the US.
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Yahoo data is garbage.
Rec, thanks!
I wonder why there is such a disconnect.
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<Wellington Street has been blocked to most traffic since late February, when police cleared “Freedom Convoy” participants who had camped out and parked vehicles along the street in protest of COVID-19 vaccine mandate.>
So, they were all upset that protesting truckers made the street unusable for a few days, and their proposed response is to keep it unusable permanently…
Warrl,
Those rebellious Canadian truckers are just one example of supply chain workers, truckers, and farmers who could pose a threat to life in the great cities of the world if they were committed to striking, blocking roads, sending politicians into exile, and/or starving the population into submission.
Canadian truckers:
https://www.cnn.com/2022/02/11/world/gallery/canadian-trucke…
Dutch farmers:
https://www.deseret.com/u-s-world/2022/7/7/23198400/why-trac…
German farmers:
https://www.youtube.com/watch?v=yOh1wuRUtrQ
Australian truckers:
https://financialpost.com/news/economy/canada-style-covid-be…
Sri Lankan farmers:
https://www.business-standard.com/article/international/lank…
French truckers:
https://www.cnn.com/2022/02/12/europe/france-freedom-convoy-…
French farmers:
https://www.peoplesworld.org/article/french-farmers-protest-…
New Zealand farmers:
https://www.theguardian.com/world/2021/jul/16/new-zealand-fa…
If you remember, the Arab Spring uprisings were exacerbated by the rising cost of rice and bread in 2011. Because of Russia’s intentional disruption of wheat and grain exports, 2022 is turning out to be a very volatile time in many countries around the globe.
The war in Ukraine and drought fuelled by climate change has sent global prices for grains, cooking oils, fuel and fertilizer soaring. Rising prices for basic food staples is fuelling protests from Indonesia to Iran.
https://www.reuters.com/markets/commodities/surging-food-pri…
As a bit of a hedge against continuing commodity inflation, I am retaining my position in the Parametric Commodity Strategy Fund (EAPCX), which is available through Fidelity for no transaction fee and with load fees waived.