The conclusion of the EU elections is one of hope and progress. These results and a growing fundamental value adds to the profit potential of European shares.
The New York Times article European Election Results” shows that voters made enough fuss to demand change, but not so much that it will disturb stability. The results of the vote were one that can instill increased confidence in Europe.
The article says (bolds are mine): Populists and nationalists who want to chip away at the European Union’s powers increased their share in Europe’s Parliament after four days of continent-wide elections, but it was not the deluge that many traditionalists had feared
When the vote counting is done, the populists are expected to get around 25 percent of the 751 seats, up from 20 percent five years ago, figures released by the European Union showed on Sunday.
The electorate is crying out for change and is therefore volatile – preferring to back new insurgents rather than the status quo parties that have been around for decades,” said Mark Leonard, director of the European Council on Foreign Relations. “The fear of a far-right takeover of the European Parliament has mobilized Europe’s pro-European forces, resulting in a huge surge in turnout and in support for Green and Liberal parties throughout Europe.”
The same was true for the European Union as a whole, the first increase in turnout in 40 years and the best since 1994.
But the decline in vote share for what he called “status quo parties” is “a warning that business as usual is not an option,” he said. “The composition of the new Parliament will be weighed in favor of pro-Europeans, but it does not mean that they have a mandate for `more of the same.”‘
The favorable aspects of this political outcome are increased voter participation… an increased demand for change… but enough votes to warrant stability.
Market fundamentals and shifts in trends support the European stock markets as well. We recently sent our Purposeful Investing Course subscribers the May 2019 edition of ENR Asset Management’s Market Outlook (2).
One point in this month’s outlook is the value buildup in Europe.
The Outlook says: U.K. and euro-zone stocks are the most unloved by global money-managers, according to Bank of America Merrill Lynch’s latest Global Fund Manager Survey in late April. European equity funds have faced net withdrawals in all but two weeks over the past 12 months, according to EPFR. The valuation ratios of European and U.S. stocks have diverged since the end of 2016, remaining substantially wider than its long-term average over the past ten years, according to FactSetdata.
This is one reason why six of Keppler Asset Management’s 10 good value developed markets are European. Here are the ten and their values.
The Outlook further confirms in a “Ride the Value-Wave Overseas” segment that shows how all the good value markets are non North American markets at this time.
That segment tells how overseas equities are laggards compared to the US markets since 2009.
In addition these markets are denominated in attractive currencies that support earnings in dollar-based markets. A weak EUR, pound, CAD, yen, South Korean won and other currencies the last several years continue to make European and overseas large-caps more compelling value investments compared to those in the United States.
However investors have focused on U.S. growth-based names since 2009 (e.g. Facebook, Amazon, Netflix, Alphabet).
Also, a soaring dollar has seriously dented returns for USD-based portfolios as foreign currencies have declined since 2011.
But cycles change.
The Outlook says: International investing hasn’t been this cheap relative to the United States since the 1980s.
The best way to ride the upcoming overseas value-wave is via ETFs.
Most of the ETFs below sell either below book-value or slightly above book-value. I’ve rarely seen foreign markets this cheap. Recently, economic data in Germany has improved after barely escaping a technical recession late in 2018.
The German economy is a powerhouse, ranked #4 in the world and an export-machine. Despite ongoing challenges with trade, the refusal to open the fiscal floodgates and investor wariness regarding the euro-zone and Brexit, German stocks are attractively-priced. Investors have been dumping euro-zone stocks for more than a year.
A bombed-out EUR should help German exporters. We also think the CDU and most other parties will agree to fiscal spending in 2020 to avoid a marked slowdown. The iShares MSCI Germany ETF(NYSE-EWG) is the most liquid avenue to invest in German blue-chips.
The iShares Edge MSCI International Value Factor (NYSE-IVLU) remains the biggest bargain among non-U.S. ETFs in the world.
IVLU has gained 9% this year. The ETF trades at a 5% discount to book or 0.95 price-to-book value ratio and 10.4 times trailing earnings. There isn’t a cheaper foreign ETF portfolio anywhere.
IVLU is 14.6% below its all-time high in 2018.
As discussed last month and according to Pictet Asset Management, the dollar is about 25% overvalued versus EM currencies –one of the biggest gaps of the past 20 years.
Investing in value based ETfs is a an easy, low cost, time saving way to increase profits and safety at the same time. IVLU offers excellent potential but we aim to make value investing even easier and safer with the Pi value analysis system described below.
Stress Less Investing
The stock market has always been the best place of places to protect and increase wealth over the long haul. Yet it’s also been the worst place to lose money, a lot of it, quickly.
There are only three reasons why we should invest. We invest for income. We invest to resell our investments for more than we had invested. We invest to make our world a better place.
The goal of investing should be to stabilize our security, bring feelings of comfort and the elimination of stress!
We should not invest in social networked protests that guarantee loss. This is like burning our houses down in protest.
If we want to change the world, we should invest in good equities that bring profit and use the extra wealth to create something beneficial for mankind.
We should not invest for fun, excitement or to get rich quickly. We should not divest in a panic due to market corrections.
This is why my core stock portfolio consists of 16 shares and this position has hardly changed in five years. During this time we have been steadily accumulating the same Top Value ETFs and have traded only a few times.
The study below shows how a value based model portfolio that dates back to 1969 has outperformed almost every stock market in the world.
The US market has not been even close to the top performer over the long term.
The DQYDJ Dow Jones Industrial Calculator (1) shows that an investment in the Dow Jones (with dividends reinvested) has risen at an average of 10.74% over the last 50 (51 actually) years.
That’s 10.74% is pretty good, but an analysis of 51 years performance of all the developed stock markets shows that (using country indices as hypothetical investments) investing in the top value (not top performing) markets would have returned 12.5%.
The chart below shows the analysis.
An annual return of 12.5% compared to the 10.74% US return is a 1.76% per annum difference. This may not seem like much,
In the long term the difference is huge. Calculations from the investor.gov site (2) shows that $10,000 invested at the 10.74% compound rate turns $10,000 into $1,817,734.62 in 51 years.
Wow, that sounds pretty good until you look at the results of the 12.5% rates. $10,000 grows to $4,062,362.22!
Investing in the top value (not the top return) markets earned $2,244,627.60 EXTRA!
$4,062, 362.22 means you would have $2,244,627.60 MORE by investing in good value markets versus $1,817,734.62 earned investing in the US market. That almost 125% more money!
Here are the best value developed markets at this time (as of end of March 2021).
No matter how we look at it, over time, value investing always wins!
Our portfolio is built around a strategy that’s taught in my Purposeful Investing Course (Pi). I call these shares my Pifolio. The course shows how to use the value analysis of Keppler Asset Management to create a portfolio of ETFs that cover undervalued stock markets. I have combined my 50 years of investing experience with the study of the mathematical market value analysis of Michael Keppler, CEO of Keppler Asset Management.
In my opinion, Keppler is one of the best market statisticians in the world. Numerous very large fund managers use his analysis to manage billions of dollars in funds. However because Keppler’s roots are in Germany (though he lives and operates from New York) all of his funds are registered for the European Union citizens, Americans cannot normally access his data.
I was lucky to have crossed paths with Michael over 25 years ago, so I am one of the few Americans who receive this data so I can share it with Pi subscribers.
The Pifolio analysis begins with Keppler’s research that continually monitors 46 stock markets and compares their value based on current book to price, cash flow to price, earnings to price, average dividend yield, return on equity and cash flow return. Keppler looks at these numbers and takes market’s history into account.
Michael Kepler CEO Keppler Asset Management.
Michael’s analysis is rational, mathematical and does not worry about short term ups and downs. Keppler’s strategy is to diversify into an equally weighted portfolio of the MSCI Indices of each good value (BUY) markets.
This is an easy, simple and effective approach to zeroing in on value. Little time, management or guesswork is required. You are investing in a diversified portfolio of good value indices.
A BUY rating for an index does NOT imply that any one stock in that country is an attractive investment. This eliminates the need for hours of research aimed at picking specific shares. It is not appropriate or enough to instruct a stockbroker to simply select stocks in the BUY rated countries. Investing in the index is like investing in all the shares in the index. You save time and gain incredible diversification because all you have to do is invest in the ETF to gain the profit potential of the entire market.
To achieve this goal of diversification the Pifolio consists of Country Index ETFs.
Country Index ETFs are similar to an index mutual fund but are shares normally traded on a major stock exchange that track an index of shares in a specific country. ETFs do not try to beat the index they represent. The management is passive and tries to emulate the performance of the index.
A country ETF provides diversification into a basket of equities in the country covered. The expense ratios for most ETFs are lower than those of the average mutual fund so they provide diversification and cost efficiency.
Here is the Pifolio I personally held at the beginning of 2021. There have been no changes since.
70% is diversified into Keppler’s good value (BUY rated) developed markets: Germany, Hong Kong, Italy, Japan, Norway, Singapore, Spain and the United Kingdom.
30% of the Pifolio is invested in Keppler’s good value (BUY rated) emerging markets: China, Brazil, Chile, Colombia, South Korea, Malaysia and Taiwan.
There is one trick Pi subscribers learn about China which is different from the rest of the funds.
iShares Country ETFs make it easy to invest in each of the MSCI indices of the good value BUY markets.
For example, the iShares MSCI Germany (symbol EWG) is a Country Index ETF that tracks the investment results of the MSCI Germany Index. The fund invests at least 80% of its assets in the securities of its underlying index that primarily consists of all the large-and mid-capitalization companies traded on the Frankfurt Stock Exchange.
iShares is owned by Black Rock, Inc. the world’s largest asset manager with over $4 trillion in assets under management.
There is an iShares country ETF for every market in our Pifolio.
This year I celebrate my 53rd anniversary of writing about global investing. Our reports and seminars have helped readers have better lives, with less stress yet make fortunes during up and down markets for decades. This information is invaluable to investors large and small because even small amounts can easily be invested in the good value shares we cover in our seminar.
How you can create your own good value strategy.
Stock and currency markets are cyclical. These cycles create extra profit for value investors who invest when everyone else has the markets wrong. One special part of your course looks at how to spot value from cycles. Stocks rise from the cycle of war, productivity and demographics. Cycles create recurring profits. Economies and stock markets cycle up and down around every 15 to 20 years as shown in this graph.
The effect of war cycles on the US Stock Market since 1906.
Bull and bear cycles are based on cycles of human interaction, war, technology and productivity. Economic downturns can create war.
The chart above shows the war – stock market cycle. Military struggles (like the Civil War, WWI, WWII and the Cold War: WW III) super charge inventiveness that creates new forms of productivity…the steam engine, the internal combustion engine, production line processes, jet engines, TV, farming techniques, plastics, telephone, computer and lastly during the Cold War, the internet. The military technology shifts to domestic use. A boom is created that leads to excess. Excess leads to correction. Correction creates an economic downturn and again to war.
Save $124.50 If You Act Now
Subscribe to the first year of The Personal investing Course (Pi). The annual fee is $299, but to introduce you to this online, course that is based on real time investing, I am knocking that down to $174.50 in this special offer. Plus I am reducing annual renewals from $299 to only $99.
I would like to send you, on a no risk basis, a 130 page basic training course that teaches the good value strategy I use. I call this strategy Purposeful Investing (PI). You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.
You get this course when you enroll in our Purposeful Investing program (Pi) with a triple guarantee.
Enroll in Pi. Get the 130 page basic training, a 46 stock market value report, access to all the updates I have sent in the past five years right away, plus numerous updates over the next year.
#1: I guarantee you’ll learn ideas about investing that are unique and can reduce stress as they help you enhance your profits through slow, worry free, easy diversified investing.
#2: I guarantee to send you monthly updates that are based on a study of every share in 46 stock markets around the world. These updates will show the values, the earnings of all these markets and categorize each market as Top Value (buy), Neutral Value (hold) or Poor Value (sell)
#3: If you are not totally happy, simply let me know. I guarantee you can cancel your subscription within 60 days and I’ll refund your subscription fee in full, no questions asked.:
You have nothing to lose except the fear. You gain the ultimate form of financial security as you reduce risk and increase profit potential.
When you subscribe to Pi, you immediately receive a 120 page basic training course that teaches the Pi Strategy. You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.
You also begin receiving regular emailed Pifiolio updates and online access to all the Pifolio updates of the last five years so you can back track if you desire. Each update examines the current activity in a Pifolio, how it is changing, why and how the changes might help your investing or not.
Subscribe to a Pi annual subscription for $174.50 and receive all the above.
Your subscription auto renewal will only be $99 a year from now, if you renew, but you can cancel at any time.