The 45th President of the USA likes to say “America First,” which is great in our view, but global diversification can be very powerful. Case in point, the US dollar has declined sharply versus the euro (EUR) so far this year (after a “yuge” November rally). This article highlights our holdings in US companies with significant non-US exposure as well as our non-US holdings. In addition to the diversification benefits, we believe there could be more rewards ahead for investors with overseas exposure.
For starters the following chart shows how the US dollar fared against the EUR since 2000.
From 2000 to the first half of 2008 the dollar got really weak, and then from the second half of 2008 through 2016 the dollar got relatively strong. In our view, the weakening was due to policies that did not prioritize the USA. And then the strengthening that started in 2008 is due to the global financial crisis. Specifically, the US led the world into that mess (by making inappropriate loans and then increasing the risks with leverage), and then the US has led the way out of that mess (i.e. the US has been leading the recovery). More specifically, we believe the Eurozone is very beat up right now (e.g. they’re still reeling from the financial crisis and more recently Brexit), but they will eventually recover. In fact, we believe that the US will lead the rest of the world (not just Europe) to greater prosperity in the future.
For perspective, here is a chart of the S&P 500 (USA) versus the FTSE 100 (UKX, Europe) and the entire non-US equity market (IXUS). This comparative data only goes back to 2012, but as you can see, the USA has been kicking butt (i.e. leading the way out of the recovery).
And this next chart shows the last one year of the US dollar versus the Euro. What we’re trying to show here is that the dollar rallied when Trump got elected and the US Fed again raised rates, but has pulled back so far in 2017 (on a relative basis) a trend we believe may actually continue (despite #45’s “America First” approach, simply because a rising US tide will raise all global ships, and the rest of the world is very beat up suggesting to us it has more room to run from a contrarian standpoint).
Certainly we have no working crystal ball, but we do believe non-US investments are attractive, and at the very least we like the volatility-reducing benefits of diversification. For your consideration, here are three ways we are playing the non-US market.
Procter & Gamble (PG)
We own Procter & Gamble in our Blue Harbinger Income Equity AND Disciplined Growth strategies. It’s based in the US, but approximately 60% of its revenues come from outside the US. As the following chart shows, PG’s price has recently pulled back (a “buy-low” opportunity in our view) as the US dollar has strengthened (a strong US dollar makes PG products more expensive in international markets).
PG offers a very healthy 3.1% dividend yield, and its products are almost always in demand around the globe. We believe it’s a blue chip among blue chips, and the recent pullback has created an attractive buying opportunity if you don’t own this one already.
Accenture is another company that does a lot of business around the globe (it was originally based in the US, but relocated years ago to Ireland for tax purposes). And Accenture’s stock price has fallen just as the US dollar has strengthened as shown in the following chart.
We believe now is a compelling opportunity to own an impressive, well-managed, “work-horse” of a company. It has no long-term debt, offers a very healthy 2.1% dividend yield, and we own it in our Blue Harbinger Disciplined Growth strategy.
iShares Core MSCI Total International Stock ETF (IXUS)
The iShares Core MSCI Total International Stock ETF seeks to track the investment results of an index composed of large-, mid- and small-capitalization non-U.S. equities. We own it in all three of our Blue Harbinger strategies (Disciplined Growth, Income Equity, and Smart Beta/ETF) because it offers powerful exposure to international markets at a very low cost (only a 0.11% management fee- incredibly low for the exposure), and it offers a nice 2.5% dividend yield. Additionally, as the following chart shows, it’s been beat up lately as the US dollar has strengthened.
Specifically, this ETF offers powerful volatility-reducing diversification¸ and we believe international (non-US) markets will recover from both a contrarian standpoint (they’re very beat up right now relative to the US as shown in our earlier chart) and from a rising tide standpoint (i.e. the US will continue to lead the world to greater prosperity—a rising tide raises all ships).