Value Shopper - Europe on Sale

If you are a value shopper, Europe may be just the buy for you.  Since the March 2009 market low through the end of last year, the S&P 500 is up twice as much as the MSCI European stock market index.


The lead may be changing, however.  Year-to-date, the S&P 500 is lagging the Morningstar benchmark MSCI ACWI Ex USA Index ETF (ACWX) by about 50%.  The Vanguard FTSE Europe ETF (VGK) is also running ahead of the S&P 500 index year-to-date.
On a relative price-to-book basis over the past twenty years, European stocks have almost never been this inexpensive.


Measured by the differential between the dividend yield and the 10-year bond yield, Europe continues to offer a higher dividend yield than treasury yield.  The ETF VGK has a current dividend yield of 3.43% versus the S&P 500 dividend yield of about 1.95%.

Value shopping is not just about low prices.  It is about paying a lower than normal price for a quality product or service.  If the price of stocks is what we are willing to pay for future company earnings, then European stocks look like a value rather than just cheap.
The chart below shows that month-over-month earnings revisions in Europe are positive and more robust than what we are experiencing in the U.S.


The U.S. stock market continues to be an excellent place to invest.  Our economy is strong and growing and corporate earnings are showing acceleration.  But increasing your international exposure today may make sense given the relatively attractive valuations, earnings acceleration and dividend yield.  The U.S. economy appears to be further along in its growth cycle than most international markets.  Shifting funds from the U.S. to international investments may be the equivalent of moving money from a late cycle investment to an early cycle investment.
The international markets are not as large, efficient or liquid as the U.S. stock market.  It often pays to use active managers in these less efficient markets.  We have met and invested with market leading portfolio managers who manage concentrated international stock portfolios and have done the due diligence to identify some of the top performing investment opportunities outside of the U.S.

We invite you to call or email anytime if you have questions about our wealth management solutions.  Please give us a call at (415) 249-6337 or email us at  to learn more.

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This commentary and previous editions are available as PDFs:

2/10/2017: Value Shopper - Europe on Sale
2/3/2017: What, Me Worry
1/27/2017: Extraordinary Earnings Louder Than Trump
1/20/2017: It's Not All About Trump
1/13/2017: I Gotta Feeling
1/6/2017: Finally, A Case for International in Your Portfolio
12/30/2016: Predicting the Future -2017
12/23/2016: Bullish New Year
12/16/2016: All I Want For Christmas is Financial Independence
12/9/2016: Debt Trap
Trade What Is, Not What You Think It Should Be – 2017 Outlook

US Capital Partners

Pursuant to the provisions of Rule 206(4)-1 of the Investment Advisors Act of 1940, we advise all readers to recognize that they should not assume that recommendations made in the future will be profitable or will equal the performance of past recommendations. This publication is not a solicitation to buy or offer to sell any of the securities listed or reviewed herein. The contents of this letter have been compiled from original and published sources believed to be reliable, but are not guaranteed as to accuracy or completeness. Nicholas Atkeson and Andrew Houghton are also principals of US Capital Wealth Management, a registered investment advisor. Clients of US Capital Wealth Management and individuals associated with US Capital Wealth Management may have positions in and may from time to time make purchases or sales of securities mentioned herein.


Jeffrey Sweeney