Investing in Europe, cheaply and for the l-o-n-g term?

DoctorW

Thanks for the post, much appreciated. (would expect nothing less from someone with a name like Ryan Futuristics - awesome game, ha)

Ideally I'd use a combination of trackers (tracking by region - an Italy index, Brazil index) and active funds to achieve this, but we've just not got the choice in the UK, so I'm having to find best-fit active funds

Can I ask what you've highlighted as best-fit active funds so far? It is pretty frustrating being in the UK and being fairly limited for trackers but maybe that's for the best for a rookie like myself for now.

At the moment my portfolio is;

ISA - VLS100 (not too worried about this, even with the high weighting in US equities it's diversified enough for me to keep holding and increasing allocation to the specific geographical areas we've spoke about above.

SIPP - 50% Vanguard EM Tracker, 50% VLS100. As this is for the long term, i'll probably increase both the EM and add a couple of Vanguard Europe trackers (ex-UK or not i'm unsure, but probably) and then the potential for active funds as I've asked you about.

It'll do for now, not going to start trying to be clever, rebalancing/selling in & out of funds, will just try to increase allocations towards other areas as I move forward.

At last check (can only see top 10 areas on the HL platform fund analysis) my whole portfolio is geographically diversified as such;

Australia 2.2%
Brazil 0.8%
China 0.7%
Direct Property and REITs 1.7%
France 2.5%
Germany 2.5%
Hong Kong 0.7%
India 0.5%
Japan 6.1%
Malaysia 0.3%
Managed Funds 9.3%
Mexico 0.4%
Other 15.5%
Russian Federation 0.3%
South Africa 0.5%
South Korea 2.6%
Switzerland 2.7%
Taiwan 0.9%
United Kingdom 13.2%
United States 36.5%

A bit too high in "other" and strangely 9.3% in Managed Funds (considering I'm only in passive investments so far i'll have to read Vanguards small print on that) but overall happy enough, just will increase DevEurope/Peripheral Europe where possible going forward.

D

Ryan_Futuristics

Ha, I wondered if anyone would spot the reference ... Just started reading Atlas Shrugged, which reads so much like the scorched utopia of that game

Well the best two funds I've found so far that would cover your major bases in a value strategy, with good managers, are Lazard Emerging Markets and TM Sanditon European

We don't know the regional allocation of Sanditon European yet, but the manager Chris Rice is keen on Spain and Italy, and agrees that Germany is probably nearer its upper valuations ... So that's a bit of a stab in the dark (but his track record is very good in Europe) ... It's only just launched - previously I was looking at Neptune European Opportunities (which hasn't beaten the index recently, but looks well positioned)

There are lots of other funds I'm looking at, like M&G Global Emerging Dividend, and Templeton Emerging Markets (investment trust) ... Funds with very low valuations include things like Neptune Russia and Aberdeen New Europe, but these are more specialised, and will act more like a straight Russian index tracker (so they'd need to be held in a diversified basket of cheap funds, as individually they'd be high risks)

I use Morningstar's portfolio tab, and also look at a fund's regional allocation against CAPE and P/B, to value funds - rather than just going on track record and star ratings ... And I've found it to be a pretty good way to pick winners - because although management will have an effect, the simple thing buying at low value tells you is whether that £1,000 you invest is buying stocks below their actual value or above ... And I think that's likely to have the biggest effect (but that's just my opinion)

Ryan_Futuristics

DoctorW wrote: »

It'll do for now, not going to start trying to be clever, rebalancing/selling in & out of funds, will just try to increase allocations towards other areas as I move forward.

PS - just on rebalancing ... For me, if you're looking at these more volatile investments, like emerging markets - where you can get rapid, developed-world-beating growth, followed by years of choppy waters and disappointment - rebalancing becomes more important

a) Because it helps automate and discipline what you're doing (it's said human instinct is the biggest risk to your investments) - so if you decide you're 15% in emerging markets, then your own short-term sentiment won't be tempted to manipulate that (you can keep focused on the long-term)

and b) When you get these great runs in volatile markets, if you're rebalancing, it means you can take a proportion of those gains, annually, and spread them into your other investments - consolidating some of what you've gained - before they collapse again, and 50% of the gain's wiped out ... It means you're always buying low and selling high (without having to make any judgement calls)

IronWolf

Europe is a bit out of favour but not exactly cheap. The STOXX is at a PE of 22 according the Bloomberg, and BE500 at 20.

Emerging markets are definitely more out of favour, including Russia and China. I personally dont like to invest in Russia but in the East there is the Hang Seng at a PE of 10, Shanghai at 11, Taiwan at 16, India a bit higher at 18.

DoctorW

Ryan_Futuristics wrote: »

Ha, I wondered if anyone would spot the reference ... Just started reading Atlas Shrugged, which reads so much like the scorched utopia of that game

Well good luck with that, I've heard it's a serious mountain to climb!

TM Sandition Europe is definitely one I think looks promising. Fairly good initial charge discount from 3.00% to zero with HL (who I'm currently with) at the moment. Not sure how long that'll be for - would certainly struggle to convince myself to invest if the 3.00% initial charge was unavoidable.

On rebalancing, I think you're absolutely right. I know the basics of where i'd like to weight my investments but I haven't actually sat down and settled on final % figures for each geographical area or Index fund etc. Maybe it would be wise to do that, so I stick to that over the next years as opposed to doing it on a whim & allowing my stupid human brain to mess things up...as it no doubt would.

I'll probably aim for something along the lines of passive trackers in;

Domestic Equity
Europe Equity (ex-UK)
Emerging Markets
Pacific ex-Japan

Not sure on the exact %ages yet.

Should be fairly diversified, while giving me enough exposure to places seen as currently offering more value. Overall though, i'll aim for low cost wherever possible and save a lot more than I earn and just relax and enjoy the ride, ha

Thanks again for your comments. Been a lot of help.

Ryan_Futuristics

@IronWolf

Yeah, Europe as a whole is a mixed bag - it's got two of the cheapest countries (Italy and Greece) and the most expensive (Denmark) ... So I wouldn't be seeking European exposure through a tracker

The Hang Seng doesn't look so good on Cyclically adjusted P/E, at around 26 - on balance Hong Kong looks expensive to me (but I like the demographics and prospects)

@DoctorW

Those Hargreaves discounts do tend to stay (especially if the fund's on their Wealth list) - open funds have fallen out of favour, so they're trying to woo people back! The fact I can rebalance a whole portfolio with no dealing charges or spreads or buy-in charges often makes trackers and investment trusts look expensive to me

And yeah, for me, no matter how much financial news and tips and CityWire analysis I read, I made mistakes when I was letting myself make decisions monthly

I'd buy into Europe, see it drop for 3 months, feel increasingly negative about the region, and look to sell out when I'd clawed back some of the losses ... In many cases I should've been buying more as it got cheaper - so with an asset allocation plan, and value targets, I'm a spreadsheet, I can be more Zen (see through the short-term news and just focus on buying cheap)

Ryan_Futuristics

PS I'm also considering Sanditon's European Select fund, or their investment trust (SIT)

They're basically real return funds - they go long and short on european equities (trying to make money when markets rise and when they fall, but requiring a great deal of skill to do so)

They've both been making money on the markets even through this dip we're in now - performance should be comparable to a bond fund long-term, but without too much exposure to bonds