Does anyone monitor or compare strong USD-based funds to weakening Euro-based funds as an opportunity to buy Euro based funds/ETFs?
One might consider buying into European based Multinationals that reside in such funds as VGK. The trade might be out of VOO (S&P 500) and into VGK (MSCI Europe)
Today the US dollar is 24% stronger when compared to the Euro from a year ago(see chart linked below):
http://screencast.com/t/PMEUb4wmComparing VOO to VGK the same 24 % difference exists (link below):
http://screencast.com/t/p5B6zqxgrr1Seems like a good trade...sell some VOO (US Equities)...buy some VGK (European Multinationals)
Comments
I established a small position in VGK a week ago based on European valuation. Also notice the decline of Euro since the crisis. Will expand further over the summer from the sale of domestic bond and equity positions.
For those that are not (ie: Nestle?) I'm not sure what you are thinking here-
Doesn't the Euro-denominated price of an individual stock on the MSCI Europe increase to reflect the lower exchange rate? It would seem to me that the price (value?) of any given large international company would be more influenced by the actual intrinsic value of that company, rather than whatever currency that is calculated in.
Also, I'm sure that you are both looking at all of the various scenarios with respect to the Euro- from total failure to perhaps somewhat of a recovery, and everything in between. How would a VGK purchase (just as an example) at this time play out with respect to that range of possibilities? I can see that the companies themselves are not going to go away, but how do you guys see the potential to make some money here?
I'm thinking that there's something here that is going right by me.
Thanks- OJ
This link is for MSCI indexes. You may find a page load with some legal stuff........you know, you won't sell this data to your neighbor, etc. I clicked agree and everything is fine. The data page loads are very fast. I picked around to find this particular page, but there are a lot of things to look at via this site.
MSCI country/regional data thur yesterday
Note: When this particular page opens, you will find two boxes above the data lists of YTD and such. You may fiddle with these if you like. I rotated between USD (which is the setting in place) and the Euro. Try this to review the + or - for Europe, in USD or EURO $.
As to whether it might be time to sell U.S. equity to buy Euroland equity; I am not sure all of the value to be had in the future has yet arrived.
Lastly.........ah, poo.........well, I can't find my paper note.........anyway, we know Spain is in deep do-do. One thing to me that is most problematic is that the Spanish 10 yr is at 7.6% or so; but the real bugger I see is the 2 year yield is not far behind in yield. Selling 10 year stuff to run a country is one thing; but if enough folks are not interested in buying the very short term funding at near the same yield............well, I smell deep do-do. UPDATE: found me numbers......Spanish 2 yr note = 6.66% (kinda scary number,eh?) and the 10 year bond = 7.57% as of Tuesday, July 24, 10am.
Just me 2 cents worth.........
Regards,
Catch
Hi OJ,
96.64% of VGK is non-US Equities
Top 25 Holdings:
VOO-
http://portfolios.morningstar.com/fund/holdings?t=VOO®ion=USA&culture=en-us
VGK-
http://portfolios.morningstar.com/fund/holdings?t=VGK®ion=USA&culture=en-us
I would agree that these companies are not going away anytime soon. I like this as it diversifies my portfolio of global companies.
I have heard that a weak currency often helps exporting. But the set of arguments (linked below) seem to argue the opposite.
Big Business likes a weak currency since a weak currencies often puts the small guy at a disadvantage.
http://bionicmosquito.blogspot.com/2011/06/weak-currency-is-good-for-exports-not.html
No answers here...just some half baked thoughts.
What happens though, if the "weak currency" becomes a "dead currency"? We know that Nestle, for example, will surely survive in the long run- but what are you expecting with respect to the transition period instability? Seems to me that this could be really hard to predict and might vary widely in length and type depending upon exactly which euro-countries the company does major business in.
In addition to which euro-countries the company does major business in, there's also which countries the company has major operations centers in, and which country the company has it's headquarters in. I imagine the HQ country would influence the choice of currency that the company is valued in if the Euro goes away.
I'm envisioning a large multinational with production and/or distribution plants in a number of euro-countries, sales all over the place, and for example, maybe HQ in London. How on earth could anyone sort all of that out before the dust finally settles?
Also, banks are a big part of VGK, with every uncertainty that entails - finance being the largest single sector in the fund.
However, as I think Bee's written about before, it's been trading in a fairly consistent range for months, so could be played that way as a short-term trade without making a call on a bottom for the euro, the direction of the UK and global economy, etc.
The whole weak currency/improved export thing works for a while, but what if you need to import more materials (which are now more expensive) to make the product you sell?
I don't know how people trade FX. Only about 30% of retail Forex trades are profitable (http://online.wsj.com/article/SB10001424052702304665904576384111852016334.html)