December 2014 Country Rankings

PDF imageRead the full Country Ranking here.

Notable Moves to the Upside…
  • Spain… moved from an underweight position to a neutral weighting. Valuation metrics and fundamentals both showed improvements in November. Spain has the highest growth in EPS over the last year and has the 4th highest dividend yield at 4.55%.
  • Japan… climbed 10 spots and is currently ranked 10th overall. Japan has been the #1 performing country in local currency over the last 6 months, up 18.72%. Hedging the currency has been a smart choice as Japan is only up 1.78% in USD during that same stretch.
Notable Moves to the Downside…
  • Mexico… fell 11 spots and is currently ranked 20th overall. Fundamentals weakened and momentum slowed in November. Mexico remains the most expensive country we follow with a trailing P/E of 21.25 and a forward P/E pf 17.91.
  • Norway… fell 5 spots in the latest rankings, despite still having the best valuation ranking and a top 5 risk profile. They were the worst performing country in November, primarily due to their 31% exposure to oil and energy companies

November 2014 Country Rankings

Read the full Country Rankings here.

Notable Moves to the Upside…
  • China… moved back to the top of the rankings after showing improving risk and valuation. They are now the cheapest country in the model. China has a forward P/E of 8.8 and a Growth to P/E Ratio that is double the average country.
  • Thailand… jumped 8 spots and is currently ranked 3rd overall. Thailand trails only India in their momentum ranking. Over the last 9 months, the Thai market is up 24.78% in local currency.
Notable Moves to the Downside…
  • Italy… is now the worst ranked country in the model and is negative in all four factor groups. Italy is fundamentally weak with no real internal growth and decelerating OECD leading indicators. They are also very expensive with a trailing P/E of 32.1.
  • Chile… fell in the rankings and is currently ranked 30th overall. Fundamentals continued to weaken in Chile where the Earnings Per Share (EPS) trend was already negative.

October 2014 Country Rankings

In October, value countries have continued to underperform the market and have been a significant drag on country selection. Meanwhile, Latin America took a huge step back as Brazil was down -19.22% on the month, showing a significant turn in what had been several months of positive momentum. Even so, the model remains split on Latin America overall: Brazil and Mexico are both in the top 5, while Peru and Chile are both in the bottom 5.

Read the full Country Rankings here.

Notable Moves to the Upside…
  • Russia… jumped 13 spots and is now back in the top 10 countries. Russia still looks most attractive from a valuation perspective, but improving risk and momentum is what moved them up in the rankings. From a currency perspective, the Russian Ruble is the most attractive in the model.
  • Israel… climbed 9 spots and is currently ranked 5th overall. Israel has had improving momentum and is the 4th best performing country on the year. Fundamentals are the main issue in Israel  where earnings growth has been slowing.
Notable Moves to the Downside…
  • China… dropped 9 spots and is now ranked 10th overall. Momentum has slowed and risks have increased. Downside volatility has increased in China by over 6% during the last 30 days, while the average country has been relatively flat.
  • Taiwan… fell 10 spots in the October rankings and is now ranked 17th overall. Most of this move came from slowing momentum. Over the last three months, Taiwan has underperformed the average country by over 5.5%.

4 Countries to Focus on in September

Heading into September, we think that the 4 countries listed below warrant extra focus. Our complete list of country rankings can be downloaded here.

3 Points to set the Global Landscape

  1. Latin America is picking up momentum as we head into the 4th quarter.  Led by Brazil, Peru, and Mexico in August, the region has outperformed the ACWI by 10.72% over the last 3 months.  Latin America underperformed the ACI by 36.16% in 2013, so it still has plenty of ground to make up.
  2. Developed Europe continued to underperform in August. Italy, Spain, Germany, Sweden, and Austria all posted negative returns for the month, and the region is down -3.38% for quarter.
  3. Countries with the strongest fundamentals continued to outperform while buying countries with cheap valuations has been a drag on country selection.

2 Countries that are rising

 

Mexico jumped 16 spots in the rankings and is now ranked #6 overall. Mexico has had rapidly improving momentum and fundamentals. The one drawback to Mexico is its valuation ranking. They are the 3rd most expensive country in the model and have the richest P/E ratio at 24.2.

Brazil has had two months of big moves in the model and is currently ranked #5. The majority of their move has come from accelerating momentum. Brazil has been the best performing country over the last 3 months, up 19.27%.

 

 

2 Countries that are falling

 

South Korea dropped 9 spots and is now ranked 12th overall. Momentum has slowed and risk has increased, primarily coming from currency appreciation in the Won. Over the last 3 months, the Korean Won has strengthened by 0.6%. Downside volatility has also been increasing over the last 30 days.

Austria continued to slide in the rankings despite improving risks. Their valuation got more expensive coupled with slowing momentum. Austria has been the worst performing country in the model over the last 3, 6, and 9 month periods.

 

Disclosures

This article is strictly informational and should be used for research use only. It should not be construed as advertising material. The opinions expressed are not intended to provide investing or other advice or guidance with respect to the matters addressed in this brochure. All relevant facts, including individual circumstances, need to be considered by the reader to arrive at investment conclusions to comply with matters addressed in this brochure. Charts and information are sourced from Accuvest Global Advisors and the MSCI, unless otherwise noted. Remember that investing involves risks, as the value of your investment will fluctuate over time and you may gain or lose money. You should seek advice from your financial adviser before making investment decisions. Investment risks are borne solely by the investor and not by AGA. AGA is an independent investment advisor registered with the SEC. All disclosures, marketing brochures, and supplemental firm sheets are available upon request.

Country Selection 101 – Exploring the range of country returns

In Dave Garff’s 2011 whitepaper, Do Countries Matter?, one of the most compelling charts was looking at the Monthly High-Low Range of country returns. The chart looked at 39 countries in both emerging and developed markets going back to 1991, and charted the monthly range of returns between the best performing market and worst performing market. Since 1991 it has been a compelling opportunity for investors to consider that by purely focusing on country selection within their global equity allocation, the long-term average monthly return range was over 33% per month.

countryselection1

However, since 2010 global investing has been marked by a period of significant outperformance of the United States relative to the rest of the world. As of July 31, 2014, the United States had outperformed the average country in the 39 country universe by a cumulative 56.02% in USD or an average annualized performance of 10.49% per year.

countryselection2What is striking to me is looking at how significantly the range of returns dropped from the last decade. During the preceding 10 years, the United States underperformed the average country by a cumulative 299.95% or average annualized performance of 14.22%. Since that time, the average monthly range dropped by nearly 6% per month and the max monthly range dropped by nearly 30%.

countryselection3While it is possible to look at the recent trend and suggest the country selection opportunities are narrowing, I would suggest that the recent drop in country selection opportunities has more to do with United States dominance of global equity markets, and less to do with a systematic change to the marketplace. As international markets turn and more specifically emerging markets recover, my expectation is that country selection opportunities will increase and give investors increased alpha generating opportunities for their investment portfolios. Using the abundant list of single-country ETFs should make expressing those opportunities even easier.

 

PDF imagePrint this piece.

Disclosures: This article was written by David Allen, a Portfolio Manager at Accuvest Global Advisors. This article is strictly informational and should be used for research use only. It should not be construed as advertising material. The opinions expressed are not intended to provide investing or other advice or guidance with respect to the matters addressed in this brochure. All relevant facts, including individual circumstances, need to be considered by the reader to arrive at investment conclusions to comply with matters addressed in this brochure. Charts and information are sourced from Accuvest, unless otherwise noted. Remember that investing involves risks, as the value of your investment will fluctuate over time and you may gain or lose money. You should seek advice from your financial adviser before making investment decisions. Investment risks are borne solely by the investor and not by AGA. AGA is an independent investment advisor registered with the SEC. All disclosures, marketing brochures, and supplemental firm sheets are available upon request.

4 Countries to Focus on in August

Heading into August, we think that the 4 countries listed below warrant extra focus. Our complete list of country rankings can be downloaded here.

3 Points to set the Global Landscape

  1. Developed Europe has been a drag for investors who were chasing the performance from the end of 2013.  It is the only region (MSCI Europe Index) with negative performance (-3.02%) over the last three months, and is highlighted by MSCI Austria which was down -11.49% in July.
  2. The MSCI Emerging Markets Index outperformed MSCI World Index (developed markets) by 3.53% in July.  China and Indonesia led the region as both were up over 8%.
  3. Countries with the strongest fundamentals continued to outperform while buying countries with cheap valuations has been a drag on country selection.

2 Countries that are rising

 

South Korea (EWY)(FKO) Jumped 4 spots in the rankings and is now ranked #3 overall.  South Korea already had top 5 risk and valuation rankings, but got a big boost with improving momentum.  As of the end of July, the MSCI South Korea Index was up 6.53% over the last 3 months.  In addition they are trading at a major discount with a 10.9 P/E compared to the MSCI ACWI Index at 17.3.

Brazil (EWZ)(FBZ)(DBBR) finally climbed in the rankings after an extended time near the bottom.  They are currently ranked near the middle of our universe at 18th overall.  They have had good momentum over the last 6 months, and are one of the few countries with positive returns this month.  Brazil remains the riskiest country we follow, especially when considering their currency valuation.  However, downside deviations are improving make it worth monitoring.

2 Countries that are falling

 

Italy (EWI) dropped 9 spots and is now ranked 30th overall.  They are the 3rd worst performing country over the last 3 months, down -6.97% (MSCI Italy Index) in USD.  Italy also has the worst fundamental profile of any country we follow.  They have the lowest Return on Equity at a mere 3.2% compared to the ACWI of 11.9%.  Valuations are also extremely rich.  The MSCI Italy Index currently has a P/E of 32.2, 18.4 points higher than their average 5-Year P/E of 13.9.

Peru (EPU) continued to slide in the rankings and is now the second worst ranked country we follow.  Valuations are at extreme absolute and relative levels. Price/Cash Earnings for the MSCI Peru Index is 33.3 while the MSCI ACWI is only 10.2.  Additionally, they have the worst year-on-year trailing growth in EPS and a dividend yield of only 1.2%.

 

Disclosures

This article is strictly informational and should be used for research use only. It should not be construed as advertising material. The opinions expressed are not intended to provide investing or other advice or guidance with respect to the matters addressed in this brochure. All relevant facts, including individual circumstances, need to be considered by the reader to arrive at investment conclusions to comply with matters addressed in this brochure. Charts and information are sourced from Accuvest Global Advisors and the MSCI, unless otherwise noted. Remember that investing involves risks, as the value of your investment will fluctuate over time and you may gain or lose money. You should seek advice from your financial adviser before making investment decisions. Investment risks are borne solely by the investor and not by AGA. AGA is an independent investment advisor registered with the SEC. All disclosures, marketing brochures, and supplemental firm sheets are available upon request.

4 Countries to Focus on in July

Heading into July, we think that the 4 countries listed below warrant extra focus. Our complete list of country rankings can be downloaded here.

3 Points to set the Global Landscape

  1. For the first time in over 20 years, the range of country returns in our model was under 10% from the best performing country to the worst.  June’s spread was a mere 9.21% with the MSCI Thailand Index up 6.81% and the MSCI Turkey Index down -2.40%.
  2. Emerging markets are sustaining momentum.  The MSCI EM Index finished the quarter up 6.60% while the MSCI EAFE Index was up 4.09% and the MSCI USA was up 5.05%.
  3. Countries with the strongest fundamentals are continuing to lead the market.  India, China, South Africa, and the US all outperformed the ACWI last month and are in the top 5 of fundamentally ranked countries.

2 Countries that are rising

 

norwayNorway (ENOR)(NORW) continued to rise in the rankings and is now our #1 overall ranked country.  They are a top 5 country in both momentum and valuation.  On a PE basis, Norway is the second cheapest country in developed Europe trading at 12.4 relative the MSCI Europe index of 17.6.  For the quarter ending June 30th, Norway was the 3rd best performing country in the MSCI ACWI Index in local currency.

india flagIndia (INDA)(INDY)(EPI)(PIN) is showing improving fundamentals, risk, and valuation, but showed the biggest jump coming from their momentum.  Since the Modi election, India has been one of the hottest countries.  They are the best performing country in the MSCI ACWI Index for the quarter and the year in local currency.  In addition to great momentum, India has solid fundamentals.  Their internal growth rate is nearly double the average country in the MSCI ACWI at 11.4% compared to the average country of 6.0%.

2 Countries that are falling

 

indonesiaIndonesia (EIDO) had the largest drop in our newest rankings and is now ranked 14th overall.  While they still have the best fundamental profile, increasing risk and decelerating momentum are bringing them down.  On the risk side, CDS levels have been increasing rapidly.  Over the last 3 months, CDS levels have increased by 1.3% while the average country in the MSCI ACWI has fallen by 7.0%.

franceFrance (EWQ) has continued to fall in the rankings and is currently ranking 27th overall.  Fundamentals are deteriorating and momentum is slowing.  France, which represents approximately 15% of the MSCI Europe Index, has an ROE of 7.6 while the MSCI Europe Index is 10.5.  France is also showing decelerating OECD leading indicators and an internal growth rate of only 2.7%.

 

Disclosures

This article is strictly informational and should be used for research use only. It should not be construed as advertising material. The opinions expressed are not intended to provide investing or other advice or guidance with respect to the matters addressed in this brochure. All relevant facts, including individual circumstances, need to be considered by the reader to arrive at investment conclusions to comply with matters addressed in this brochure. Charts and information are sourced from Accuvest Global Advisors and the MSCI, unless otherwise noted. Remember that investing involves risks, as the value of your investment will fluctuate over time and you may gain or lose money. You should seek advice from your financial adviser before making investment decisions. Investment risks are borne solely by the investor and not by AGA. AGA is an independent investment advisor registered with the SEC. All disclosures, marketing brochures, and supplemental firm sheets are available upon request.

How to Invest in the EU

Looking at which EU countries offer the best investment opportunity given the ECB actions

The European Central Bank (ECB) took action last week to increase bank liquidity and lending with hopes of stimulating the economy and fighting deflation. There were a couple of key points from Mario Draghi’s comments that investors should be aware of:

  1. The ECB cut rates on all three policy rates and became one of the first major central banks to have a negative deposit rate. This means that banks, which are keeping excess cash at the ECB, will have to pay them to do so.
  2. Short-Term and Long-Term liquidity will remain high given the new Targeted Long-Term Refinancing Option (TLTRO) and the fixed rate full allotment procedure. These are in place to support bank lending to households and non-financial corporations
  3. The ECB stated that they are preparing for quantitative easing with a potential purchase program of Asset backed Securities (ABS).

In 2013 we saw countries that had heavy stimulus and central bank activity provide the strongest equity market returns. While the ECB continues and prepares to take more action, we think that certain countries within in the EU provide a much more meaningful return opportunity than taking an indexed approach to the entire region. Europe ETFs have already attracted more than $10 billion this year. That’s more than 20 percent of all inflows going into a category that makes up 3 percent of all ETF assets. According to Bloomberg, European ETFs have attracted $27 billion over the last 12 months. As news of the ECB actions work their way into investment portfolios, we think that a second round of flows into Europe will follow.

Price momentum should be reviewed carefully

The flow to European ETFs picked up significant momentum in the second half of 2013 following a spike in performance. As we look over the last 12 months of returns from EU countries, it is important to note that Spain (EWP) and Italy (EWI) have significantly outperformed the rest of the EU, while. Austria (EWO) and Poland (EPOL) have been the biggest laggards.

investEU1

Valuations and Fundamentals need to be considered

I hear from a lot of investors that Europe still offers a good ‘value’ opportunity. While it is true that the EU trades at a slight discount to the MSCI ACWI Index and the MSCI USA Index, each country within the region is not a good ‘value’ opportunity. As a result of great performance, Italy is the most expensive country we rank in the EU. In addition to a rich valuation, the country has significantly weaker fundamentals than the region as a whole. In the chart below (sorted by performance over the last 12 months), it is easy to visualize both the disparity in returns, as well as PE and ROE within the region.

investEU2

Investment Implications

Given the differences on a country by country basis, we believe that taking a single-county approach offers investors the best way to access the EU. Taking the multi factor approach used in David Garff’s whitepaper helps us determine which countries offer the best relative attractiveness. The June rankings of the EU countries are below, while the full rankings are available here. Based on the current rankings we think that Spain, Sweden (EWD), and the United Kingdom (FKU, EWU) have the most potential to benefit from ongoing ECB actions and potential QE. Both countries are members of the EU, but are not Euro based.

investEU3

PDF imagePrint this piece

Disclosures: This brochure is strictly informational and should be used for research use only. This brochure should not be construed as advertising material. The opinions expressed are not intended to provide investing or other advice or guidance with respect to the matters addressed in this brochure. All relevant facts, including individual circumstances, need to be considered by the reader to arrive at investment conclusions to comply with matters addressed in this brochure. Charts and information are sourced from Accuvest Global Advisors and the MSCI, unless otherwise noted. Remember that investing involves risks, as the value of your investment will fluctuate over time and you may gain or lose money. You should seek advice from your financial adviser before making investment decisions. Investment risks are borne solely by the investor and not by AGA. AGA is an independent investment advisor registered with the SEC. All disclosures, marketing brochures, and supplemental firm sheets are available upon request.

June 2014 Country Rankings

Through the first 5 months of the year, country returns have been tight. The MSCI ACWI Index is up 4.22% this year and the average country is up 6.08%.

Emerging markets are gaining momentum. Over the last 3 months the MSCI EM Index is up 7.02% while the MSCI USA Index is only up 3.56% and MSCI EAFE Index is up 2.44%.

Turkey is well into a breakout within the Emerging Market region. The MSCI Turkey Index is up 37.71% over the last 3 months, outpacing the ACWI by over 34%. However, Turkey only makes up 1.73% of the emerging markets index.

Notable Moves to the Upside

  • Norway… rose 11 spots from 13th to 2nd, and entered the top 5 for the first time. Norway has great momentum and even better valuations. The P/E on Norway is 13.3 compared to the average country at 16.9.
  • Indonesia… moved into the top 5 and is currently ranked 4th overall. They are the second best performing market this year, up 22.97%. Additionally they have one of the best fundamental profiles showing the highest ROE and internal growth rate.

Notable Moves to the Downside

  • Chile… fell 3 spots and is now the lowest ranked country we follow. Despite improving performance in Latin America, Chile has had declining momentum and increasing risk. The Chilean peso is overvalued which will be an additional headwind.
  • Germany… fell out of the top 5 and is now ranked 15th overall. Fundamentals and momentum have quickly deteriorated. Germany has underperformed the average country by 5.62% over the last 3 months.

For more on countries, strategies, and movement in the model, see our full Portfolio Notes:

PDF imageJune Portfolio Notes

june countries2014

May 2014 Country Rankings

This month, Spain and Italy dropped slightly in the model and were replaced by Germany in the top six. However, China and the United States maintained their positions at the top of the model.

This year, value factors, which have been the best driver of performance over the last 12 months, are the only factor group to make a positive contribution.The momentum factors are continuing to show signs of mean reversion across countries, while select emerging markets are quickly moving up the rankings due to accelerating momentum and improving fundamentals.

Notable Moves to the Upside

  • Turkey… climbed 18 spots to 10th overall. Turkey has been the best performing market over the last 3 months, up 20.2%. Fundamentals are also improving across a variety of factors.
  • Peru… moved up 11 spots from 25th to 14th overall. Similar to Turkey, Peru is showing improving momentum and fundamentals. Valuation and risk remains higher than average.

Notable Moves to the Downside

  • Russia… continues to drop, despite having the cheapest valuation in the model. They are now ranked 21st overall and have the worst momentum and 2nd highest risk in the entire model.
  • Japan… fell 9 spots and is now ranked 28th in the model. Momentum has been the biggest drag on Japan, which has been the 2nd worst performing country over the last 3 months. They are down -5.0% during that period.

For more on countries, strategies, and movement in the model, see our full Portfolio Notes:

PDF imageMay Portfolio Notes

Top 6 Countries for May 2014