Eq: Dev ex-US

(Brussels)

We thought it would be good to add a little European flavor to today’s coverage. The Financial Times has written a very insightful piece about the EU and the effect Brexit has had on it. In particular, it cites Donald Tusk, one of the EU’s top policymakers, who says that Brexit has been a “vaccine” against anti-EU parties across the continent. “As Europeans see what Brexit means in practice they also draw conclusions … vaccine against anti-EU propaganda and fake news”.


FINSUM: The EU has seen what Brexit has done to quell any anti-EU sentiment within the Union, which means it will never let off the gas pedal in making Britain’s departure a hellish ordeal.

(New York)

One the tail risks for markets right now is the sharp downturn that is supposed to happen to the stock buyback market. Huge levels of corporate buybacks have been supporting US equities for years, but that is forecast to drop dramatically. While that may wound US stocks, it poses a major opportunity for another area: Europe. European stocks don’t see much in the way of buybacks, which has left them much less loved than the US recently. However, the declines in US buybacks are likely to make Europe look much more attractive.


FINSUM: European valuations are significantly more attractive than in the US, which means that if the playing field gets levelled by decreased buybacks, there is probably a good opportunity here. That said, Europe has a lot of economic issues right now.

(New York)

The move towards passive management has been worthy of the term “flood”, with investors pouring funds into ETFs and out of mutual funds. Fees have been a major part of that shift, but performance has been too, as active management performance has been broadly weak over the last decade. However, there are some areas where mutual funds have significantly outperformed passives—international funds. Especially in emerging markets (e.g. India and Mexico), but also in developed ones like the UK and Italy, 10-year track records show significant outperformance for active managers. The opposite is true in US funds.


FINSUM: Sifting through market opportunities gets harder and harder (and finding alpha alongside it) as you move into less liquid markets. Accordingly, we think there is a lot of benefit to using actively managed funds for international stocks.

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