Invest only in the Eurozone?

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Sycomorez
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Invest only in the Eurozone?

Post by Sycomorez »

I’m surprised to find not one conversation on the forum about the possibility for an investor of the eurozone to invest only in an EMU index fund (Eurozone). I understand the majority is in favor of global diversification but, not a single person has ever thought about it?

I’m surprised that something that creates so much debate amongst Americans seems so obvious to the eurozone investors. After all, the eurozone offers a unique opportunity to invest in several countries without currency risk.

With this post I am not trying to convince anyone of anything. I just think it would be interesting to at least have a conversation/debate about it: is it necessary for the eurozone investors to invest in the rest of the world?

To me, Jack Bogle’s logic to say that Americans only need to invest in their country is very stoic: focus on what you can control. The investor has no control over future returns. But he does have control over costs, time and risks. International adds currency risk. Since international investing has additional risk and does not improve returns for an American, common sense to him is that going international is not necessary.

So the question is: does international investing bring better returns to the eurozone investors?

Reading the Credit Suisse 2017 yearbook is what gave me the idea for this post (https://www.credit-suisse.com/media/ass ... 017-en.pdf). In that report there is data from 1900. For the whole time frame what is now the eurozone has not done very well. But I am not sure that data from the first half of the 20th century is relevant. Because of wars it would be like comparing apples with rotten tomatoes.

Much more interesting is the data from 1967 to 2016. During those 40 years, total returns in USD adjusted to inflation are pretty much the same for what is now the EMU and the US. And better than World.

Warning: country weight is the actual weight so the result is an estimation
Image

EMU: 5,7%
USA: 5,8%
World: 5,3%

And so, using the same common sense I guess eurozone investors should at least ask themselves the question: is international necessary? Is it worth the risk?

I do not want to put tons of charts, Credit Suisse is a solid source that I believe will suffice for this post. But I did go on MSCI’s website did the math and, yeah: long term, EMU’s total returns are similar to US total returns.

That being said, I would be interested in seeing any data that says otherwise. If you have such data, please share.

The EMU is only 255 stocks vs 500+ for the S&P 500 but they are international companies with a good diversification in sectors categories and the top 10 holdings are just 25% vs 30% for the S&P 500. It is well diversified.

The legal framework is arguably just as good as the american. The obvious negative is political: the US will still exist in a 100 years. The EU? Not so sure.

But, meanwhile, it is a unique opportunity to invest in several countries without currency risk.

So, why does it seem so obvious that eurozone investors have to invest globally?

Is there really no one following that strategy?
Last edited by Sycomorez on Fri Jan 14, 2022 3:58 pm, edited 1 time in total.
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asset_chaos
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Re: Invest only in the Eurozone?

Post by asset_chaos »

The American investor who decides to have only US stocks currently has 50-something% of the global stock market capitalization. The EU investor who decides to have only EU stocks has about 10% of global market cap. Why concentrate stock risk when it is easy to diversify globally. I believe solely US stocks is not the best choice for an American, but it's defensible because the US makes up the bulk of the capitalization. For everyone else invest only in your home market is adding concentration risk. The EU is a big economy, but it houses only a small part of the global stock market capitalization.

Mitigate portfolio risk by holding bonds. And it's in the bonds that an EU investor should prefer euro denominated or euro hedged.
Is there really no one following that strategy?
From the research I've seen everywhere has a substantial home market investment bias. I suspect most investors in he EU are well over market weight in EU stocks, just like the typical UK or Australian investor is well over market weight UK or Australian stocks respectively. But most investors aren't boglehead type investors. As one of the bogleheads principles is wide diversification, it may be unsurprising that here broad diversification is often advised, even if most investors in the world do not follow that advise.
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xxd091
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Re: Invest only in the Eurozone?

Post by xxd091 »

Agree with all the above
As a U.K. investor of many years standing (40+) I absorbed the global investing philosophy a long ago
Missing out on US growth-still the financial powerhouse of the world -would have cost me a lot of money
Even now US is still over 50% of the world Stockmarkets -better regulated and cheaper to invest in than anywhere else
Home country bias is a fallible human trait-understandable-but will cost you in terms of portfolio growth unless you are an American!
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Lauretta
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Re: Invest only in the Eurozone?

Post by Lauretta »

I have greatly overweight the Eurozone I have posted a few posts years ago on this.
However so far I have not worked out very well except that I have a lot in small caps which have done very well but large caps have really lagged the US. It might still work out in the long term but so far it's not been that great.
I also read a paper saying that you shouldn't have much volatility by investing in foreign stocks if your home currency is the euro
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Re: Invest only in the Eurozone?

Post by Laurizas »

Sycomorez wrote: Thu Jan 06, 2022 12:18 pm I’m surprised to find not one conversation on the forum about the possibility for an investor of the eurozone to invest only in an EMU index fund (Eurozone)
It could be connected to the fact that since 2009 US stocks have outperformed European stocks by double, so it is more appealing to go with world stocks which is about 55 % US then only EMU stocks.
Sycomorez wrote: Thu Jan 06, 2022 12:18 pm I understand the majority is in favor of global diversification but, not a single person has ever thought about it?
My salary, house value and future pension are and will be connected with some extent to EMU economy, hence, EMU stocks. Why would I then hold only EMU stocks? I want diversification, I want to avoid Japan's scenario.
Sycomorez wrote: Thu Jan 06, 2022 12:18 pm I’m surprised that something that creates so much debate amongst Americans seems so obvious to the eurozone investors. After all, the eurozone offers a unique opportunity to invest in several countries without currency risk.
This:
asset_chaos wrote: Thu Jan 06, 2022 5:38 pm The EU investor who decides to have only EU stocks has about 10% of global market cap.
Sycomorez wrote: Thu Jan 06, 2022 12:18 pm is it necessary for the eurozone investors to invest in the rest of the world?
Yes, it is necessary.
Sycomorez wrote: Thu Jan 06, 2022 12:18 pmInternational adds currency risk.

Currency risk is more detriment to bonds, not stocks, see Vanguard research
https://personal.vanguard.com/pdf/ISGPCH.pdf
Sycomorez wrote: Thu Jan 06, 2022 12:18 pm So the question is: does international investing bring better returns to the eurozone investors?
So far it has, given Eurozone's troubles: low birth rate, low growth etc., I do not see it meaningfully outperforming world stocks into the future.
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Re: Invest only in the Eurozone?

Post by alpine_boglehead »

Why black and white? You can also do something in between. E.g. 80% world, 20% Eurozone (in addition to what's in world).

Why give up on global diversification? I wouldn't want to miss out on the opportunities presented by investing in Amazon, Tesla and Berkshire Hathaway. I also like to invest in Nestle, Astra Zeneca and BMW. Tencent, Toyota and Samsung? Sure. Thus, a globally diversified portfolio. I often think I can't even begin to appreciate how lucky we all are to be able to invest in such a diversified and systematic way at such low cost.
Sycomorez wrote: Thu Jan 06, 2022 12:18 pm But, meanwhile, it is a unique opportunity to invest in several countries without currency risk.
The Eurozone/EU also has some pretty unique risks. I well remember 2011, when the possibility of the Euro going under was a considered a realistic scenario. That would also have hit European stocks hard.
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Re: Invest only in the Eurozone?

Post by deepvalleys »

The performance of the US market will probably lead to more people investing only in the US - not only Americans who ditch international but also European investors and Asian investors? Which will lead to even more frothy US indexes.
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Re: Invest only in the Eurozone?

Post by Valuethinker »

OP should definitely seek global diversification.

There's no rationale just tying oneself to European equities -- home country bias.
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Bernmaster
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Re: Invest only in the Eurozone?

Post by Bernmaster »

Investing exclusively in domestic stocks due to a false sense of superiority, safety, patriotism, or a combination of them is irrational no matter your nationality.
"Our greatest freedom is the freedom to choose our attitude.” ― Victor Frankl | Global stocks (VWRL) and cash
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Re: Invest only in the Eurozone?

Post by Valuethinker »

Bernmaster wrote: Wed Jan 12, 2022 7:52 am Investing exclusively in domestic stocks due to a false sense of superiority, safety, patriotism, or a combination of them is irrational no matter your nationality.
Agreed.

The smaller one's own home market is as a percentage of the global index, the greater the risk of "tracking error" ie the risk of equity performance (for the individual) not matching the index average (which was available to her/him as an investing universe). Thus for a US person it is a relatively small risk, for most European countries it is quite a large risk. Historic correlations with the US or global markets may not be a good guide to future correlations.

Concerns about FX risk are really separate. They can be addressed by:

- holding currency-hedged funds
- (more likely) - holding a higher percentage of domestic assets (bonds and bank accounts, chiefly)

Most of us have a state pension right in our home currency (usually inflation indexed), possible Defined Benefit pension scheme rights (state or private), careers (in which we earn money) & home equity -- all of these in our home currency. That increases the gains from diversifying into global equities (in terms of lower overall volatility of purchasing power).
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Sycomorez
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Re: Invest only in the Eurozone?

Post by Sycomorez »

Thanks all for your answers.

I don't have time to answer everyone right now but want to at least clarify one thing:
Bernmaster wrote: Wed Jan 12, 2022 7:52 am Investing exclusively in domestic stocks due to a false sense of superiority, safety, patriotism, or a combination of them is irrational no matter your nationality.
I provided no such arguments.

But I did provide a rational argument: currency risk

I could have added:
* The cost of buying currency (nobody does it for free)
* Better fiscality, avoid double taxation of dividends

These are valid rational arguments and I would appreciate if the conversation remains about that: rational arguments. Thanks.
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Re: Invest only in the Eurozone?

Post by finrod_2002 »

Sycomorez wrote: Wed Jan 12, 2022 4:37 pm Thanks all for your answers.

I don't have time to answer everyone right now but want to at least clarify one thing:
Bernmaster wrote: Wed Jan 12, 2022 7:52 am Investing exclusively in domestic stocks due to a false sense of superiority, safety, patriotism, or a combination of them is irrational no matter your nationality.
I provided no such arguments.

But I did provide a rational argument: currency risk

I could have added:
* The cost of buying currency (nobody does it for free)
* Better fiscality, avoid double taxation of dividends

These are valid rational arguments and I would appreciate if the conversation remains about that: rational arguments. Thanks.
You can buy world global diversified funds which are denominated in Euros, so no need to buy other currencies if you don't want to. If you hold a global diversified fund, you only receive dividend from that fund. Often it is an Irish one, which doesn't withhold taxes. So you only pay the taxes required in your country of residence.

Regarding why for US investors it can be enough to invest only in companies which are listen on US exchanges, that is because US listed companies make currently up more than 60% of the world index (source https://investor.vanguard.com/etf/profile/portfolio/vt). Probably, you can live with missing 40%. Personally, I prefer to hold the whole world index, which gives me a better sense of diversification and lets me sleep better.. :happy
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Re: Invest only in the Eurozone?

Post by TedSwippet »

finrod_2002 wrote: Thu Jan 13, 2022 3:09 am
Sycomorez wrote: Wed Jan 12, 2022 4:37 pm ...
These are valid rational arguments and I would appreciate if the conversation remains about that: rational arguments. Thanks.
If you hold a global diversified fund, you only receive dividend from that fund. Often it is an Irish one, which doesn't withhold taxes. So you only pay the taxes required in your country of residence.
For clarity, and I'm sure you probably already know this, an ETF internally pays dividend withholding tax on dividends its receives, to the country where the stock paying the dividend is based. In a very real sense, you pay tax to all those countries that levy dividend withholding taxes too.

As it turns out, the US is more than 50% of all-world stocks by market cap, and also pretty well at the top end of things when it comes to dividend withholding tax rates. So by avoiding ETFs and funds that hold US stocks, you are arguably reducing the level of taxation on your investment gains. And an EU-only portfolio would definitely exclude US stocks.

Of course, by excluding US stocks you may easily find that the outperformance missed, even with US tax withholding, is greater than the tax drag saved, so this may be a weak argument. However, it is a rational one. :-)
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Re: Invest only in the Eurozone?

Post by finrod_2002 »

TedSwippet wrote: Thu Jan 13, 2022 4:05 am
finrod_2002 wrote: Thu Jan 13, 2022 3:09 am
Sycomorez wrote: Wed Jan 12, 2022 4:37 pm ...
These are valid rational arguments and I would appreciate if the conversation remains about that: rational arguments. Thanks.
If you hold a global diversified fund, you only receive dividend from that fund. Often it is an Irish one, which doesn't withhold taxes. So you only pay the taxes required in your country of residence.
For clarity, and I'm sure you probably already know this, an ETF internally pays dividend withholding tax on dividends its receives, to the country where the stock paying the dividend is based. In a very real sense, you pay tax to all those countries that levy dividend withholding taxes too.

As it turns out, the US is more than 50% of all-world stocks by market cap, and also pretty well at the top end of things when it comes to dividend withholding tax rates. So by avoiding ETFs and funds that hold US stocks, you are arguably reducing the level of taxation on your investment gains. And an EU-only portfolio would definitely exclude US stocks.

Of course, by excluding US stocks you may easily find that the outperformance missed, even with US tax withholding, is greater than the tax drag saved, so this may be a weak argument. However, it is a rational one. :-)
Yes, that's true. But then again isn't that so that an Irish fund has for example to pay internally dividend taxes to European listed companies as well? For example for an Italian company it is around 27%, which seems pretty high to me as well. Ok it is less than the 30% of US companies, but it seems to me the rational argument gets even weaker... :happy
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Re: Invest only in the Eurozone?

Post by TedSwippet »

finrod_2002 wrote: Thu Jan 13, 2022 4:57 am Yes, that's true. But then again isn't that so that an Irish fund has for example to pay internally dividend taxes to European listed companies as well? For example for an Italian company it is around 27%, which seems pretty high to me as well. Ok it is less than the 30% of US companies, but it seems to me the rational argument gets even weaker...
The Italy/Ireland treaty rate on dividends is 15%, so assuming that an Ireland domiciled fund can use the treaty(?), that would put dividends from Italy on par with those from the US, also 15% under the US/Ireland treaty. To find the blended rate across all European countries' dividend withholding taxes would involve more treaty reading than I care to to do(!), but as a short-cut, Vanguard's annual report for the Vanguard FTSE Developed Europe UCITS ETF shows dividend withholding tax at around 7.5% of dividend income.

The main argument here, though -- to the extent that there is one -- is that it is not so much favouring EU stocks as it is simply avoiding US stocks that has the major impact when it comes to minimising foreign dividend withholding tax drag. Of course, minimising foreign dividend withholding tax drag is not necessarily at all the same thing as maximising returns ...
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Re: Invest only in the Eurozone?

Post by 3CT_Paddler »

Bernmaster wrote: Wed Jan 12, 2022 7:52 am Investing exclusively in domestic stocks due to a false sense of superiority, safety, patriotism, or a combination of them is irrational no matter your nationality.
What about investing in a country due to its degree of regulatory and legal embrace of capitalism? There are exceptions but many of these countries make it difficult to start businesses or fire full time employees along with a host of other roadblocks.

The idea that all Western democracies are the same economically is also irrational.
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Re: Invest only in the Eurozone?

Post by JoMoney »

Sycomorez wrote: Thu Jan 06, 2022 12:18 pm I’m surprised to find not one conversation on the forum about the possibility for an investor of the eurozone to invest only in an EMU index fund (Eurozone). I understand the majority is in favor of global diversification but, not a single person has ever thought about it? ...
I've posted about it before, or at least in the context of quoting one of Warren Buffett's investment managers at Berkshire Hathaway ( Ted Weschler ) offering the Euro equivalent of Buffett's advice for most U.S. investors
viewtopic.php?p=3364485#p3364485

viewtopic.php?p=3704018#p3704018
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: Invest only in the Eurozone?

Post by Valuethinker »

Sycomorez wrote: Wed Jan 12, 2022 4:37 pm Thanks all for your answers.

I don't have time to answer everyone right now but want to at least clarify one thing:
Bernmaster wrote: Wed Jan 12, 2022 7:52 am Investing exclusively in domestic stocks due to a false sense of superiority, safety, patriotism, or a combination of them is irrational no matter your nationality.
I provided no such arguments.

But I did provide a rational argument: currency risk

I could have added:
* The cost of buying currency (nobody does it for free)
* Better fiscality, avoid double taxation of dividends

These are valid rational arguments and I would appreciate if the conversation remains about that: rational arguments. Thanks.
Sycomorez wrote: Wed Jan 12, 2022 4:37 pm Thanks all for your answers.

I don't have time to answer everyone right now but want to at least clarify one thing:
Bernmaster wrote: Wed Jan 12, 2022 7:52 am Investing exclusively in domestic stocks due to a false sense of superiority, safety, patriotism, or a combination of them is irrational no matter your nationality.
I provided no such arguments.
US investors here (defending a 0 international weighting) tend to produce arguments along those lines.
But I did provide a rational argument: currency risk

I could have added:
* The cost of buying currency (nobody does it for free)
* Better fiscality, avoid double taxation of dividends

These are valid rational arguments and I would appreciate if the conversation remains about that: rational arguments. Thanks.
Currency costs for a fund are very small - currency markets turn over something like $5 trillion a year, on very small margins (spreads). EM currencies would be a possible exception. Given that equity funds don't hedge their exposure (generally) they only need to convert to EUR to pay a dividend in EUR (and for cash inflows and outflows to the fund), it is unlikely to be a huge number.

Re dividends yes, but see Ted Swippet's posts. It is a drag on performance and we have discussions here about how big. Say 15% of 3% global yield so around 45 bps? But x 50% b/c it's mostly a US problem.

Currency risk. Agree this is uncompensated volatility-- the market doesn't likely pay you for taking on the risk. However that opens up the question of whether Eurozone stocks are a good hedge of the level of the Euro:

- to the extent that they are exporters a rise in the EUR is a bad thing (Eur index has an unusually high percentage of exporters)
- to the extent that they are importers a rise in the EUR is a good thing
- to the extent that they are domestic stocks only, with no operations outside the EUR, that is neutral
- to the extent the company hedges its FX exposure itself, that is neutral

The reality is these questions are difficult or impossible to answer. A company like Nestle is not in the EUR, and produces results in CHF. But it is a Swiss listed stock. But it's not a play on the Swiss economy. Nestle is one of the 10 largest companies in the world by market cap, still, I believe.

So:

- if you are concerned about FX exposure you should buy the global index, because that has maximum diversification & use a currency hedged fund
- however for equities, we tend to believe that Purchasing Power Parity holds (in the long run) so there's likely little gain in doing so. If one is within 10 years of retirement, say, I think that the case for hedged equity funds is great. However by that age most of us have pretty chunky bond weightings (or bond proxies like DB pensions) and so the point is somewhat moot

- you could rely on historic correlations between Eurozone stocks and global index & overweight Eurozone stocks. However historic correlations are not necessarily a good forecast of future correlations.

EDIT

I just realised that I inadvertently flagged up another issue with "only investing in Europe":

- Sweden, Switzerland both have substantial markets full of global supercompanies like Roche & Nestle (also Glencore, but I think its primary listing is London). Denmark has one of the world's leading healthcare companies (Novo Nordisk), its largest offshore wind company (Orsted).

So do we ignore these companies because their home market of listing is not in the Eurozone?

What about Shell and Unilever with their joint listings in Amsterdam and London? (Shell is relisting only in London, I believe). London is neither in the EU nor in the Eurozone?
Last edited by Valuethinker on Thu Jan 13, 2022 8:46 am, edited 1 time in total.
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Re: Invest only in the Eurozone?

Post by Valuethinker »

JoMoney wrote: Thu Jan 13, 2022 7:33 am
Sycomorez wrote: Thu Jan 06, 2022 12:18 pm I’m surprised to find not one conversation on the forum about the possibility for an investor of the eurozone to invest only in an EMU index fund (Eurozone). I understand the majority is in favor of global diversification but, not a single person has ever thought about it? ...
I've posted about it before, or at least in the context of quoting one of Warren Buffett's investment managers at Berkshire Hathaway ( Ted Weschler ) offering the Euro equivalent of Buffett's advice for most U.S. investors
viewtopic.php?p=3364485#p3364485

viewtopic.php?p=3704018#p3704018
It's also noticeable just how bad your performance would have been had you followed Weschler's advice ie simply to invest in Europe.

There is a reason to globally index. And that's that there are structural changes in world markets, and sometimes those changes massively favour one country. In this case, the US, which is the home of almost all the big internet stocks (given how the Chinese ones have performed lately, probably all).

You don't want to miss the next Google, or the next Apple, because of the domicile of its home stock listing.
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Re: Invest only in the Eurozone?

Post by JoMoney »

Valuethinker wrote: Thu Jan 13, 2022 7:41 am... Nestle is one of the 10 largest companies in the world by market cap, still, I believe...
Not currently in the top 10 by market cap 'globally' (including U.S.) it ranks around #14, but is #2 if otherwise excluding U.S. listed public companies.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: Invest only in the Eurozone?

Post by Valuethinker »

JoMoney wrote: Thu Jan 13, 2022 7:46 am
Valuethinker wrote: Thu Jan 13, 2022 7:41 am... Nestle is one of the 10 largest companies in the world by market cap, still, I believe...
Not currently in the top 10 by market cap 'globally' (including U.S.) it ranks around #14, but is #2 if otherwise excluding U.S. listed public companies.
It was the last non US holdout for a long time, but I realise that I have not looked in probably 9 months.
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Re: Invest only in the Eurozone?

Post by finrod_2002 »

Valuethinker wrote: Thu Jan 13, 2022 7:43 am
JoMoney wrote: Thu Jan 13, 2022 7:33 am
Sycomorez wrote: Thu Jan 06, 2022 12:18 pm I’m surprised to find not one conversation on the forum about the possibility for an investor of the eurozone to invest only in an EMU index fund (Eurozone). I understand the majority is in favor of global diversification but, not a single person has ever thought about it? ...
I've posted about it before, or at least in the context of quoting one of Warren Buffett's investment managers at Berkshire Hathaway ( Ted Weschler ) offering the Euro equivalent of Buffett's advice for most U.S. investors
viewtopic.php?p=3364485#p3364485

viewtopic.php?p=3704018#p3704018
It's also noticeable just how bad your performance would have been had you followed Weschler's advice ie simply to invest in Europe.

There is a reason to globally index. And that's that there are structural changes in world markets, and sometimes those changes massively favour one country. In this case, the US, which is the home of almost all the big internet stocks (given how the Chinese ones have performed lately, probably all).

You don't want to miss the next Google, or the next Apple, because of the domicile of its home stock listing.
Seems to me that Ted Weschler advises "A European based fund", not necessarily a fund that holds only European stocks. For example something like Vanguard FTSE All-World UCITS ETF if I understand him correctly. It is European based and holds the whole world (except small caps).
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Re: Invest only in the Eurozone?

Post by mrsmitt »

Why limit yourself just to that region that has its own set of risks?

In short term and mid term I would stay far away from Europe, due to major geopolitical risks.
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Re: Invest only in the Eurozone?

Post by TedSwippet »

mrsmitt wrote: Thu Jan 13, 2022 9:05 am In short term and mid term I would stay far away from Europe, due to major geopolitical risks.
Priced in, to the extent that any which exist are not figments of your imagination.
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Re: Invest only in the Eurozone?

Post by Valuethinker »

finrod_2002 wrote: Thu Jan 13, 2022 8:48 am

Seems to me that Ted Weschler advises "A European based fund", not necessarily a fund that holds only European stocks. For example something like Vanguard FTSE All-World UCITS ETF if I understand him correctly. It is European based and holds the whole world (except small caps).
I may have misread him, but I read it that a US investor should hold a broad US index fund, and a European investor a broad European index investment fund.

But it did not sound like he knew that much about the European investment landscape.

If ofc he was talking about a global equity index fund, then yes that is much more sensible. However AFAIK such have only been available in Europe for about the last 10 years? There were plenty of "global" funds, but they were all actively managed?
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Re: Invest only in the Eurozone?

Post by Valuethinker »

TedSwippet wrote: Thu Jan 13, 2022 1:46 pm
mrsmitt wrote: Thu Jan 13, 2022 9:05 am In short term and mid term I would stay far away from Europe, due to major geopolitical risks.
Priced in, to the extent that any which exist are not figments of your imagination.
A point which one side of the argument just cannot get its head around. i.e. that if markets are efficient, that's generalisable to which markets you choose, because valuation addresses the concerns.

There's always event risk. If we have a war in the Ukraine in the next few weeks then the market might take another leg down. But no one could reasonably say that it was a surprise.
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Re: Invest only in the Eurozone?

Post by masni »

Hello,

Can you share the data point that you are using as to compare the US and EUR market.

I am using the MSCI index

MSCI Europe 10 year return 8.82 % in USD
MSCI USA 10 year return 15.96 %

https://www.msci.com/documents/10199/54 ... e6750b2a42
https://www.msci.com/documents/10199/db ... eb6a47faf0
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Sycomorez
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Re: Invest only in the Eurozone?

Post by Sycomorez »

Valuethinker wrote: Thu Jan 13, 2022 7:41 am
Probably because they are Jack Bogle's arguments. :wink:
alpine_boglehead wrote: Sat Jan 08, 2022 12:07 pm Why give up on global diversification? I wouldn't want to miss out on the opportunities presented by investing in Amazon, Tesla and Berkshire Hathaway. I also like to invest in Nestle, Astra Zeneca and BMW. Tencent, Toyota and Samsung? Sure. Thus, a globally diversified portfolio.
I'm surprised to read this kind of arguments on this board because index investing has little to do with individual stocks. I mean, if the returns are similar, why should I care if Luis Vutton or Facebook gave it to me? I don't even know if these companies will still exist in 20-30-40 years!
alpine_boglehead wrote: Sat Jan 08, 2022 12:07 pm Why black and white? You can also do something in between. E.g. 80% world, 20% Eurozone (in addition to what's in world).

(...)

The Eurozone/EU also has some pretty unique risks. I well remember 2011, when the possibility of the Euro going under was a considered a realistic scenario. That would also have hit European stocks hard.
Yeah, that's my main concern.

Don't think it means we should all go global though, I agree there is more than black and white.

Sleeping well at night without japanese scenarios nightmares is something Bogle did not talk about. :-? :-D
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Sycomorez
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Re: Invest only in the Eurozone?

Post by Sycomorez »

Lauretta wrote: Sat Jan 08, 2022 8:41 am I also read a paper saying that you shouldn't have much volatility by investing in foreign stocks if your home currency is the euro
Interesting, do you by chance have a link? :happy
3CT_Paddler wrote: Thu Jan 13, 2022 6:30 am What about investing in a country due to its degree of regulatory and legal embrace of capitalism? There are exceptions but many of these countries make it difficult to start businesses or fire full time employees along with a host of other roadblocks.

The idea that all Western democracies are the same economically is also irrational.
Totally agree! :beer

Wish there was a Freest Economies of the World index.
JoMoney wrote: Thu Jan 13, 2022 7:33 am I've posted about it before, or at least in the context of quoting one of Warren Buffett's investment managers at Berkshire Hathaway ( Ted Weschler ) offering the Euro equivalent of Buffett's advice for most U.S. investors
viewtopic.php?p=3364485#p3364485

viewtopic.php?p=3704018#p3704018
Interesting...

Doesn't mean we should do it but good to know that it's not a totally crazy idea. :mrgreen: Thanks.
asset_chaos wrote: Thu Jan 06, 2022 5:38 pm Mitigate portfolio risk by holding bonds. And it's in the bonds that an EU investor should prefer euro denominated or euro hedged.
Valuethinker wrote: Wed Jan 12, 2022 8:23 am Most of us have a state pension right in our home currency (usually inflation indexed), possible Defined Benefit pension scheme rights (state or private), careers (in which we earn money) & home equity -- all of these in our home currency. That increases the gains from diversifying into global equities (in terms of lower overall volatility of purchasing power).
Good points.

Didn't take that into consideration, thanks! :happy
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Re: Invest only in the Eurozone?

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masni wrote: Fri Jan 14, 2022 10:17 am Hello,

Can you share the data point that you are using as to compare the US and EUR market.

I am using the MSCI index

MSCI Europe 10 year return 8.82 % in USD
MSCI USA 10 year return 15.96 %

https://www.msci.com/documents/10199/54 ... e6750b2a42
https://www.msci.com/documents/10199/db ... eb6a47faf0
It's from Credit Suisse, link in my first post.

It's data from 1967 to 2016, the last 10 years were incredibly good for US stocks but the previous ones were called "The Lost Decade".

Warning: my table is done using the actual country weight which was not the one during all those years so the result is an "estimation" to be taken with a grain of salt (I added a warning to my first post).

But if you run tables in MSCI for long periods of time, you might be surprised, for example, until 2018:

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Re: Invest only in the Eurozone?

Post by Valuethinker »

Sycomorez wrote: Fri Jan 14, 2022 12:59 pm
Valuethinker wrote: Thu Jan 13, 2022 7:41 am
Probably because they are Jack Bogle's arguments. :wink:
Proof by Authority is not proof, of course.

alpine_boglehead wrote: Sat Jan 08, 2022 12:07 pm Why give up on global diversification? I wouldn't want to miss out on the opportunities presented by investing in Amazon, Tesla and Berkshire Hathaway. I also like to invest in Nestle, Astra Zeneca and BMW. Tencent, Toyota and Samsung? Sure. Thus, a globally diversified portfolio.
I'm surprised to read this kind of arguments on this board because index investing has little to do with individual stocks. I mean, if the returns are similar, why should I care if Luis Vutton or Facebook gave it to me? I don't even know if these companies will still exist in 20-30-40 years!
Could you explain the logic behind your response? Or is it simply that you mean "If we assume that returns will be similar, then..." ?
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Re: Invest only in the Eurozone?

Post by Sycomorez »

finrod_2002 wrote: Thu Jan 13, 2022 3:09 am You can buy world global diversified funds which are denominated in Euros, so no need to buy other currencies if you don't want to.
Even if the fund is in Euros, if you want it to then buy canadian shares for example, they will need to buy canadian currency. And when you sell, it will be the other way around: it's canadian dollars that they then need to convert to euros. All that is not done for free.
finrod_2002 wrote: Thu Jan 13, 2022 4:57 am Yes, that's true. But then again isn't that so that an Irish fund has for example to pay internally dividend taxes to European listed companies as well? For example for an Italian company it is around 27%, which seems pretty high to me as well. Ok it is less than the 30% of US companies, but it seems to me the rational argument gets even weaker... :happy
I called Vanguard Europe (in Ireland) and their answer was vague like "yeah... but... we can't promess you anything".

In theory, they can reclaim some dividend tax inside Europe. Here is part of the email they sent me later:

When there are tax treaties in place between the Ireland (the fund domicile) and the underlying countries within the portfolio, the fund intend to reclaim a certain amount of the dividend withheld at source. For example, the treaty between Ireland and Germany allows up to 11.375% to be reclaimed. This being said (...) The Company may not be able to benefit from a reduction in the rate of such foreign tax by virtue of the double taxation treaties between Ireland and other countries. The Company may not, therefore, be able to reclaim any foreign withholding tax suffered by it in particular countries.

They also told me that it's 15% on US dividends only for ETFs, for funds it's 30%.
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Re: Invest only in the Eurozone?

Post by Sycomorez »

Valuethinker wrote: Fri Jan 14, 2022 1:14 pm
Proof by Authority is not proof, of course.
Of course! That is why I created a thread to talk about it, because I value other points of view.

Just saying that it should not be a surprise to read Bogle's like arguments on a forum called Bogleheads...

Valuethinker wrote: Fri Jan 14, 2022 1:14 pm
Valuethinker wrote: Fri Jan 14, 2022 1:14 pm
alpine_boglehead wrote: Sat Jan 08, 2022 12:07 pm Why give up on global diversification? I wouldn't want to miss out on the opportunities presented by investing in Amazon, Tesla and Berkshire Hathaway. I also like to invest in Nestle, Astra Zeneca and BMW. Tencent, Toyota and Samsung? Sure. Thus, a globally diversified portfolio.
I'm surprised to read this kind of arguments on this board because index investing has little to do with individual stocks. I mean, if the returns are similar, why should I care if Luis Vutton or Facebook gave it to me? I don't even know if these companies will still exist in 20-30-40 years!
Could you explain the logic behind your response? Or is it simply that you mean "If we assume that returns will be similar, then..." ?
In Common Sense on Mutual Funds, in the chapter about Mean Reversion, Bogle (him again! :wink: ) mentions that from 1959 to 2009 the US and EAFE (all developed but Canada and the US) returned the same: 11,5%

And so, yes, unless someone can prove that in the future 40-50 years the US will dominate, it is reasonable to assume similar returns in the long term.
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Re: Invest only in the Eurozone?

Post by alpine_boglehead »

Sycomorez wrote: Fri Jan 14, 2022 12:59 pm
alpine_boglehead wrote: Sat Jan 08, 2022 12:07 pm Why give up on global diversification? I wouldn't want to miss out on the opportunities presented by investing in Amazon, Tesla and Berkshire Hathaway. I also like to invest in Nestle, Astra Zeneca and BMW. Tencent, Toyota and Samsung? Sure. Thus, a globally diversified portfolio.
I'm surprised to read this kind of arguments on this board because index investing has little to do with individual stocks. I mean, if the returns are similar, why should I care if Luis Vutton or Facebook gave it to me? I don't even know if these companies will still exist in 20-30-40 years!
Exactly, index investors are agnostic to individual stocks. And in the same way they are (should be) agnostic to individual regions.
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Re: Invest only in the Eurozone?

Post by alpine_boglehead »

Sycomorez wrote: Fri Jan 14, 2022 1:17 pm In theory, they can reclaim some dividend tax inside Europe. Here is part of the email they sent me later:

When there are tax treaties in place between the Ireland (the fund domicile) and the underlying countries within the portfolio, the fund intend to reclaim a certain amount of the dividend withheld at source. For example, the treaty between Ireland and Germany allows up to 11.375% to be reclaimed. This being said (...) The Company may not be able to benefit from a reduction in the rate of such foreign tax by virtue of the double taxation treaties between Ireland and other countries. The Company may not, therefore, be able to reclaim any foreign withholding tax suffered by it in particular countries.

They also told me that it's 15% on US dividends only for ETFs, for funds it's 30%.
That's also what I found out in this thread

Take a look at the annual report of Vanguard funds, they make the withholding taxes quite transparent. For Vanguard FTSE All-World, it reports $174m dividend income, and paid $27m foreign withholding tax in the year ending 30 June 2021. Which is weird ... it used to be around 12% (was for the year ending 30 June 2020), but now it seems to be 15.5% ...
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Re: Invest only in the Eurozone?

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I have some wild imagination and the market is not pricing what will likely to happen. We will see in the next 1-6 months… Russia will get major economic sanctions and it will retaliate against the EU. All this is not good for economy or a stock market.

Anyways, it brings me to the same point: why invest in that region alone to expose yourself to major risks? Do not put all your eggs in one basket as Russia can crash all of them at once:)
TedSwippet wrote: Thu Jan 13, 2022 1:46 pm
mrsmitt wrote: Thu Jan 13, 2022 9:05 am In short term and mid term I would stay far away from Europe, due to major geopolitical risks.
Priced in, to the extent that any which exist are not figments of your imagination.
Last edited by mrsmitt on Sat Jan 15, 2022 7:20 am, edited 1 time in total.
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Re: Invest only in the Eurozone?

Post by Sycomorez »

alpine_boglehead wrote: Fri Jan 14, 2022 5:03 pm That's also what I found out in this thread

Take a look at the annual report of Vanguard funds, they make the withholding taxes quite transparent. For Vanguard FTSE All-World, it reports $174m dividend income, and paid $27m foreign withholding tax in the year ending 30 June 2021. Which is weird ... it used to be around 12% (was for the year ending 30 June 2020), but now it seems to be 15.5% ...
That's great stuff!

Wasn't able to find it myself.

Glad I registered on this board, danke. :sharebeer
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