Invest In “Europe?” No. In European Companies? Yes.

What you choose to buy in Europe is definitely affected by the value of the Euro vis a vis the currencies of other regions with whom they trade internationally.  The weaker the Euro, the cheaper European companies’ goods and services are in the target nations’ (those the export to) currencies.  So a weak Euro is good for European firms that export a large proportion of what they produce and offer.

Having just spent time on the European continent and in the UK, I am convinced, more than ever, that the best European firms have tightened their belts and are ready for serious competition.  I’ve been to 21 of the 28 EU member states and each time I visit any of them, I am impressed with the rate of change I see.

I said in a previous article, “As the Euro gains, European multinationals lose their pricing advantage.  Long term, however, I believe this is a blip; the Euro will remain stable or even fall as the EU continues their QE.  European companies will do better going forward.  We’ll maintain or, if stopped out, re-enter these positions at what may well be better prices.”

Since then our positions have merely marked time.  HEDJ was 63.83 on May 5, when we published our May issue; today it is just 64.11.  EUSC was 25.98 on May 5 and is 25.71 today.  DXGE was 29.82 and is 29.41 today. (Prices as of the close 25 June, 2015.)  I believe these ETFs are filled with great companies that are just marking time for awhile as they consolidate prior to their next move up.

While the summer doldrums often strike across the planet, not just in the US, we’ll use any pullback to add to or re-initiate positions in some of these companies and ETFs.

Wisdom Tree Germany Hedged Equity (DXGE)’s largest 5 holdings are Daimler  (parent of Mercedes, Freightliner trucks and more,) Deutsche Telekom, Bayer (known by most consumers for their aspirin but in fact a huge life sciences, polymer and chemicals company,) Allianz (the huge insurance and financial products company [and parent of PIMCO] that we like so much we own it directly in our portfolio,) and BMW.
Wisdom Tree Europe Hedged Equity (HEDJ) counts among its top 5 Anheuser-Busch Inbev (BUD); Spanish and Latin America telco Telefonica; Daimler; Unilever (parent of Dove, Axe, Ben & Jerry’s, Lipton, Vaseline, Hellman’s, Breyers, Q-Tips, Noxzema and scores of other products many Americans think of as “American,”) and Sanofi (SNY), one of the largest healthcare companies in the world.

Wisdom Tree Europe Hedged Small Cap (EUSC) is the only one whose top 5 will likely be unrecognized by most of us here in North America: Elisa Oyj is a Finnish telecom and data provider active in a number of markets; Bpost SA de Droit Public is the 51% Belgian government owned postal services firm; freenet Group is the biggest independent telecom  in Germany; Mediolanum provides banking, insurance and financial products and services in Italy and abroad; and Lagardere is the 150-year-old content provider and distributor of both print and digital media.  While the parent company’s name might not be a household word, it is the world’s 3rd-biggest trade book publisher with Hachette, Harlequin, Elle, Parents, Paris Match and many others that are readily recognized.

We still own all three of these ETFs in our G&V Portfolio, along with AZSEY, BP and Norway ETF NORW among our European holdings.  In the Aggressive Portfolio, we own Statoil (STO) and Petroleum Geo-Services (PGEJF), as well as international mutual funds with a strong European component.  We like our ratio of US and developed market securities.

Disclosure: The author wrote this article, and it expresses his own opinions. The author is not receiving compensation for it. The author has no business relationship with any ...

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J Town 6 years ago Member's comment

The European ETFs that you mentioned have barely moved an inch since this article was written. HEDJ is now only at 63.91 compared to 63.81 and DXGE at 29.55 compared to 29.82 for example. I would suggest that one cannot separate the economic situation of Europe with the performance of these ETFs. Greece has weighed heavily on the psyche of investors and will continue to create concern and volatility. Perhaps there are better options for investing in hand picked European companies, but in my opinion these ETFs are too cumbersome in the short to medium term.

Joseph Shaefer 6 years ago Author's comment

The article was written June 25, not even 20 days ago! I suppose if one's time horizon is 20 days this looks like too little "action." Our investment thesis, stated in the first paragraph, has to do with QE in Europe and the ascent of the USD. This is an investment, not a trade.

Greece, to the multinationals we favor, is nothing but an ancillary event that has little effect on their customers, revenues or earnings -- which is why I never mentioned it.