American mutual funds are scouring Europe for bargains, snapping up Dutch oil drillers, French drugmakers and Swiss food producers on speculation the region’s rally is just beginning as the U.S. bull market ages.
Oliver Pursche, a Suffern, New York-based manager beating 97% of rivals in 2013, bought Total SA and Royal Dutch Shell Plc for their relatively high dividends and low valuations relative to peers. Sanofi in Paris is among about 25 new stocks added by Timothy Ghriskey’s Solaris Asset Management LLC in Bedford Hills, New York. Overseas companies that get most of their sales from within the U.S. are favorites of Paul Zemsky, the head of asset allocation at ING Investment Management.
The allure of European stocks is drawing managers with almost $5 trillion under management after $13 trillion was added to U.S. equity prices since March 2009 and the Standard & Poor’s 500 Index capped its best stretch of gains since 2004. While investors speculate the Federal Reserve will cut stimulus in March, they are betting the European Central Bank will keep economic measures for longer. Europe’s economy is forecast to return to growth next year.
“This is a good time to be trimming back now and increasing the international allocation,” Russ Koesterich, the San Francisco-based chief investment strategist at BlackRock Inc., said in a Dec. 3 phone interview. BlackRock is the world’s largest money manager with $4.1 trillion as of Sept. 30. “Parts of Europe are under-owned by investors. These are places where there’s still a lot of pessimism, so any good news can produce some run-ups in these stocks.”
Equities around the world fell last week as investors speculated when the Fed will reduce stimulus. The S&P 500 declined less than 0.1% to 1,805.09, the first weekly drop since Oct. 4, curbing the 2013 gain to 27%. The Stoxx Europe 600 Index lost 2.7%, bringing the year to 13%. The 1.8% drop in the Topix Index trimmed this year’s rally in Japanese stocks to 44%. The S&P 500 gained 0.2% to a record 1,808.50 at 9:46 a.m. in New York today.
The S&P 500 has risen 167% since March 2009 and surpassed the record high set in October 2007 by as much as 15%. The bull market has lasted 57 months, about nine more than the average since World War II, according to data compiled by Bloomberg and Birinyi Associates Inc. With this year’s 27% gain on track for the best annual return in 15 years and pushing valuations to the highest in almost four years, some investors are going outside the U.S. to pick stocks.
“Companies in Europe that are exposed to Germany or the United States are going to do better because they are still trucking along,” Zemsky, whose firm oversees $190 billion, said in a Dec. 4 phone interview. “There’s definitely a globally synchronized recovery going on and at the same time, you have a situation where central banks aren’t trying to stop it. They’re actually trying to encourage it.”
Pioneer Investments is recommending that investors prune their holdings of U.S. equities, saying that the improving economy has reduced the scope for Fed stimulus to propel further gains in stocks. Chief Investment Officer Giordano Lombardo, who oversees about $228 billion of investments globally, said in Paris last week that he recommends having an underweight position in U.S. equities and an overweight position in European, Japanese and Chinese shares.
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