Which Stocks Are Attractive Now: U.S. or Europe?

European stocks have under-performed their American peers for many years now. However after years of under-performance European stocks could outperform American stocks this year. According to John Bennett of Henderson European Focus Trust, European stocks offer a bet better bet especially in the value and growth category. Before we get to his reasons, the below chart shows that European equities decoupled from US equities from 2011.

Click to enlarge

The following is an excerpt from the article by Mr.John Bennett:

No gorging in Europe

Further, unlike the US, Europe has never been infused with – nor enthused by – the equity culture, and thus share buybacks as a means of earnings-per-share or share-price support have never been that popular. In contrast, emboldened by executive compensation schemes and plentiful supplies of low-cost debt, corporate America has gorged itself at the buyback feast. Add to that the bottom-line boost from president Trump’s tax reforms and maybe, just maybe, America’s stock market boom isn’t all down to vastly superior operating models.

In other words, sufficient evidence exists to suggest that the age-old inputs – and potential nemeses for investors – of investor crowding (fashion) and artificially boosted earnings (cheap money, leverage, buybacks, tax breaks) are at work. As sure as night follows day, those factors will not always be in investors’ favour. For example, one ingredient that would turn things in the investment world upside down, and catalyse a resurgence of value stocks, would be the return of inflation.

What we are really saying is that one doesn’t need to be a diehard mean reversionist to question the zeitgeist. A combination of investor positioning, the human tendency to extrapolate from share prices, growth rates or market share gains, a late-stage bull market in US equities and the US economy, not to mention valuation (it never matters until it does) all suggest that now is not the time to give up on Europe – nor indeed her equities. Now is not the time to abandon a selection of so-called “value” stocks in favour of an all-out “growth” (or momentum) portfolio. Happily, Europe offers an ample selection of both.

Source: John Bennett: Europe or US? Europe is a surer bet for value and growth stocks, Money Observer

How to invest in Europe?

Some of the ETFs available for Europe are:

  • SPDR STOXX Europe 50 ETF (FEU)
  • Vanguard FTSE Europe ETF (VGK)

Disclosure: No Positions

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