This is the list of currencies I have on MyYahoo page.
Of late, and this has gotten some attention, the dollar has sold off in a big way against a lot of other currencies.
This tends to belie a willingness in the market place to take more risk. The AUDCHF, the second from the bottom, which some view similarly to the old TED spread, has moved dramatically in the favor of the Aussie.
A year ago AUDCHF was around 0.92, so it has moved 13% to get to 1.04.
The US dollar is down against all sorts of deficit currencies like the Aussie and kiwi and it has also lost ground to the surplus currencies like the Norwegian krone and Swedish kroner.
The dollar is also down against just about every emerging market currency you can think of too, not all of them but most.
The portfolio implication is unclear in that you can find plenty of smart folks that can lay out a compelling case about how a weaker dollar helps our economy, helps exports and so on but I don't really buy into this idea. I think its more like a weaker dollar is not 100% bad which is a long way from saying it is a good thing.
I heard Peter Schiff on one of the shows on Tuesday (Kudlow?) calling for the same collapse he has been calling for every time I have ever heard him speak. While I don't think much of always predicting the same very extreme outcome the more important part of his message get thrown in as an after thought; buy foreign stocks.
The US market has lagged most other markets in local terms and the outperformance magnifies when you factor in you get an extra 8% from the Aussie dollar and 6% from the Norwegian krone (as two examples of countries I have been writing about for several years).
Being in touch with big macro trends like this makes investing much easier. The simple decision to go foreign has been very important and seems very likely to continue to be very important.
9 comments:
Another two sides of this:
Brad Setser's most recent post affirming that currency moves have been the wind to the back of US investers in the Eurozone (and have thus helped keep the Current Account deficit under control) and perhaps held the dollar back from falling further
http://www.rgemonitor.com/blog/setser/
Then there is
http://www.nber.org/digest/jul07/w12697.html
found via Abnormal Returns which argues that the foreign markets, while performing well, are becoming more correlated with the US markets (i.e.less effective as a stabilising diversifier).
So the currency moves are boosting returns on international assets but those returns are becoming more aligned in ups and downs with US returns. (which seems to be a marketwide phenomenon, more correlation along all asset classes). I wonder if this trend continues what it will do to Modern Portfolio Theory, et al (which advocates for international funds in a diversified portfolio not just for more return but for a reduction of risk).
What funds are you a fan of to get European exposure? Worldwide exposure?
these two comments relate to each other.
correlations up? yes but more so in panics down.
It is this point that leads me to focus on countries beside UK, France and Germany in client accounts and in my writing.
to the second comment I don't use any broad funds. I make country selections from the top down and then try to figure the best way to access those countries.
Five years ago, my portfolio was 8% European, 8% Asia Pacific, 8% Latin America and 2% Eastern Europe. This gave me 26% International exposure. Thanks to the recent run up in these investments, my current foreign exposure is more than 50% of my portfolio. In line with my overall strategy, I have begun to reduce this exposure on run ups. However, I do expect to keep my International exposure higher than "normal".
In view of the highly indebted US consumer and sagging US economy, I would like to change my US exposure from the current "broad based" ETF holdings (I hold SPY, MDY, IWM, XLF, QQQQ, etc.) to one focused on US corporations with a higher global revenue stream. If Roger or anyone can suggest an ETF or even mutual fund that would help gain such an exposure, I would appreciate it.
Jey, don't know of any ETF's with a fundamental investment policy like that and the only mutual fund I can think of w/ such a policy is Buffalo USA Global (BUFGX) viz "The fund normally invests at least 80% of net assets in common stocks of U.S. companies that have substantial international operations."
As I recall part of the fund's rationale was that no one was in a better position to manage currency than a company actually involved in doing overseas business (the implication being I suppose that profit could come from well managed currency transactions as well as transactions in goods).
Be interested to see what others come up with.
Here is a "Seeking Alpha" article from a few months back that suggests that investing in US companies that have overseas exposure will not get you the kind of return that you are looking for:
"You sometimes hear that the best way to tap into international stock markets is to plunk dollars into shares of U.S. companies that have extensive operations overseas. On first blush, this strategy makes sense. After all, non-financial companies in the S&P 500-stock index generate about 40% of their revenue outside the U.S. So an ETF that tracks the S&P 500 (SPY) provides you with all the foreign exposure you'll ever need.
But that argument is bunk. The returns of the S&P 500 already include the benefits of U.S. companies' exposure to foreign markets. Companies in the S&P would have done even worse without operations in fast-growth foreign markets. To benefit from diversification and higher returns, you need to invest in foreign markets directly. Buying Coca Cola doesn't cut it. There are a handful of exceptions: U.S. companies that have all their operations in their foreign target markets, such as Cognizant Technologies (CTSH) or NII Holdings (NIHD).
The verdict is clear. Investors who stuck to tried and true U.S. stocks have done much worse than those who wandered outside U.S. borders."
http://etf.seekingalpha.com/article/25614
I am not familiar with ADR's. Perhaps Roger can better fill us in of this investment vehicle.
http://www.fool.com/personal-finance/general/2007/07/03/international-sparklers-for-foreign-stock-first-ti.aspx
Fidelity used to have a mutual fund: Export was in the name...not sure if it still exist.
Chances are that OEF would cover the bases. Takes a mega cap company to accomplish what is being targetted.
My suggestion make your own basket of five diversified companies. John Deere, Coke/pepsi, J&J, EOM, etc....but my preference is to find small/mid cap companies with healthy foreign revenue stream. It would be nice to have a screen for that.
Every foreign stock on the NYSE is an ADR. The terminology means nothing in the context of researching a company.
You research a company, decide you like or not, if yes, buying the ADR is easier but you can by the ord if you prefer instead.
Thanks RW. Comparing BUFGX to ^SPX over five years makes it obvious that BUFGX does not outpeform the latter. Perhaps that is because the US consumer has been spending so far. However, it more likely means the fund manager lacks the ability to pick good stocks.
I owned BUFSX (Small Cap) for five years only to realize that it failed to beat IWM. Now, I am very careful about getting into mutual funds.
Anyway, thank you for your suggestion. If you can tell me how you searched for a fund with such criteria, I could do some research myself.
To Anon 2:39: The fidelity fund would be Fidelity Export and Multinational Fund (FEXPX). Beats ^SPX over five years, but not over the last 2-3. Five star rated. It's inability to match (let alone beat) ^SPX over the past three years causes concern..........
Informative Seeking Alpha write up. Bottom line: I may as well leave my US portfolio as is and keep my higher than usual foreign exposure. After all, the foreign ETFs I hold (ILF, EPP, VGK, etc.) have all left ^SPX in the dust.....
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