UK Funds vs US Funds

economic

because Europe is a complete basket case - they have a broken banking system, flawed monetary system (quite frankly its a joke) and judging by the politician actions (as well as ECB) I don't have any faith in Europe at all. with japan I worry what the bond market would do - rates have been low/negative there for so long. even the slightest uptick in rates can have huge problem for japan.

as for US rate hikes even small rate hikes with inflation would mean confirmation/confidence in the US economy whilst all other economies are falling apart so USD has surely to go up. this will eventually cause a recession in the US.

tg99

economic wrote: »

because Europe is a complete basket case - they have a broken banking system, flawed monetary system (quite frankly its a joke) and judging by the politician actions (as well as ECB) I don't have any faith in Europe at all. with japan I worry what the bond market would do - rates have been low/negative there for so long. even the slightest uptick in rates can have huge problem for japan.

as for US rate hikes even small rate hikes with inflation would mean confirmation/confidence in the US economy whilst all other economies are falling apart so USD has surely to go up. this will eventually cause a recession in the US.

Yeah can see where you are coming from, I guess I am in the camp that believes such concerns are to a large extent reflected in the lower valuations afforded to these markets and that divergence in monetary policy is going to be a big tailwind for Europe and Japan relative to the US. That said, they are likely to suffer more than the US in the event of another global downturn.

Yep most bear markets are caused by a recession that is induced by policy becoming too tight which as you say is likely to involve the USD getting stronger given it is hard to see rates being hiked much if at all elsewhere over the next year or so. I've generally found by far the best leading indicator of US financial conditions becoming too tight and thus that a recession is on the horizon is the spread between 10 year and 2 year Treasuries. Raising short term interest rates eventually leads to a flattening of the yield curve and the spread therefore dropping to roughly zero or below which is a definite big flashing warning light. Still nowhere near such a flattening as yet given Fed has only just started upping rates.

Scarpacci

economic wrote: »

the market is always right. retail investors make a small part of the overall market. that's another reason to be bullish. usually you can spot a bubble when retail investors have piled into the market. its retail investors who always lose out on average in the stock market as they don't time it well.

If the market is always right, I have to wonder what the question being asked is, because if it's "what is the long-term earnings potential of this company", then the market must be wrong a lot. I think there's a large probability that the 52 week highs and the 52 week lows of a share price in many cases, though by no means all, would not correspond to a material change in the company's prospects even in the medium term, much less the long term.

When it comes to equities, the underlying companies which sell products or services do not see their fortunes change minute by minute, but their share prices do. Even now for companies like Glencore or Tesco, who are at lows precisely because earnings are falling, there are frequently days where the share prices moves up sharply which aren't necessarily based on improvements in the business.

Take a company like Unilever over the past twelve months. Was the market right at £30.87 and Unilever was poised to sell mammoth amounts of soap, ice cream and margerine? Were Dove and Lynx not flying off the shelves when it fell to £24.50? Did the market sell-off in August mean that the two billion consumers of Unilever products were going to shower less frequently and drink less tea? Or was the share price moving around in response to news and events which didn't necessarily impact the company to the same extent. Maybe the movement was based on the risk appetite of institutions and traders, which didn't correspond to a real change in the value of the company's earnings.

The market may well have priced every available piece of information at the time in, but the real question is how much of that truly matters to the only thing that will over the long term drive return: the earnings potential of companies. To what extent people can expect to spot when a stock is mis-priced or separate changes in attitudes to risk from actual changes in the companies is certainly questionable, but I don't think it's accurate to claim the market prices are consistently a true reflection of the underlying companies. Most companies' prospects just don't change that much.

As Warren Buffet said: "It should be an enormous advantage for investors in stocks to have those wildly fluctuating valuations placed on their holdings — and for some investors, it is. After all, if a moody fellow with a farm bordering my property yelled out a price every day to me at which he would either buy my farm or sell me his — and those prices varied widely over short periods of time depending on his mental state — how in the world could I be other than benefited by his erratic behavior? If his daily shout-out was ridiculously low, and I had some spare cash, I would buy his farm. If the number he yelled was absurdly high, I could either sell to him or just go on farming."

mike88

The fact Europe is a basket case does not necessarily mean that funds will perform badly. In the last 12 months for example European medium sized company funds rose by an average of 15.84% compared with North American equities which rose by an average of 5% ..............................source City Wire.

economic

are those returns comparable ie both priced in USD and then compared? if not then I suggest you compare in the SAME ccy. EUR has declined about 10% vs. USD. so both markets returned the same in usd terms.

chucknorris

masamoah wrote: »

Hi guys
I have just signed up to Barclays and want to invest in funds. I am looking to have investments for about 10 years. I was talking to a friend yesterday, and he said you were better off investing is US funds instead of UK funds. His reasoning was that the US market is a lot better. How true is this? Would you guys agree that i am better off investing in US funds?

I like this, it is quite diversified both geographically and in sector:

https://global.vanguard.com/portal/site/loadPDF?country=uk&docId=1012

mike88

economic wrote: »

are those returns comparable ie both priced in USD and then compared? if not then I suggest you compare in the SAME ccy. EUR has declined about 10% vs. USD. so both markets returned the same in usd terms.

The Fund Performance Tables on City Wire compare like for like and are in GBP. My only European Fund was the best performer out of 18 in the last calendar year.

tg99

economic wrote: »

are those returns comparable ie both priced in USD and then compared? if not then I suggest you compare in the SAME ccy. EUR has declined about 10% vs. USD. so both markets returned the same in usd terms.

You need to compare them in their own local currency terms to make them truly comparable as otherwise you are allowing currency returns to mask stock returns and potentially influence your decision making (not that decisions should be made on the basis of past performance anyhow). For example, a UK-based investor choosing to invest in US stocks in preference to European stocks in part because they think the USD will do well and the Euro badly is allowing a currency call to prevent them from optimising their stock portfolio. Currency can be hedged or added synthetically as required.

economic

yes you do need to compare in local currency for your own true return. but point I was making is it needs to be in the same currency. but yeh local ccy would be better. however if you are comparing US vs. EUR fund priced in GBP and these two funds are not ccy hedged then any returns differential can potentially be due to ccy risk alone and not equity performance. a lot of funds which are global do not hedge ccy risk and I wonder if retail investors really know they are taking on ccy risk.

tg99

economic wrote: »

yes you do need to compare in local currency for your own true return. but point I was making is it needs to be in the same currency. but yeh local ccy would be better. however if you are comparing US vs. EUR fund priced in GBP and these two funds are not ccy hedged then any returns differential can potentially be due to ccy risk alone and not equity performance. a lot of funds which are global do not hedge ccy risk and I wonder if retail investors really know they are taking on ccy risk.

By local currency I mean the currency of the stock markets, I.e. USD for US fund, EUR, CHF etc for European fund, not the currency of the investor (GBP). That said, I think we are saying similar things but from a different viewpoint as I am talking about when you are making a decision where to invest and what fund to invest in then need to look at stock market return potential in its own local currency terms and then hedge or synthetically add currency exposure on top depending if you have any view here. Whereas I agree that if someone holds two overseas funds that are unhedged they need to compare in GBP terms to look at what return they are actually receiving.....like you say, I reckon the average investor will not be totally clued in to what underlying fx exposure they have especially as some managers will tactically hedge some of their overseas fx positions.