The increasingly unattractive prospect of robust exposure to U.S. stocks has not kept me from sticking with the trends. My clients will continue to own funds like iShares S&P 100 (OEF), SPDR Select Health Care (XLV), Vangurd Mega-Cap Growth (MGK) as well as iShares USA Minimum Volatility (USMV) until there is a significant breach of the 200-day moving average on the downside. What-the-heck pricey? You bet. On the other hand, the market can remain insanely effervescent for a whole lot longer than an investor can accept 0% in a money market. As long as one has a plan for exiting – rather than foolishly hoping-n-holding – one is able to minimize the risk of remaining invested in overvalued equities.
It is important to recognize, though, that stock uptrends in foreign markets come with lower P/E price-tags. Conservatively speaking, developed world stock assets trade at a 10%-15% P/E discount to the U.S., while broad-based emerging market stock assets may be trading at a 20% to 25% discount. It has been more difficult for me to embrace either Vanguard Europe (VGK) or Vanguard Emerging Markets (VWO) yet, as both have resistance at their respective 200-day trendlines and both do not have the currency-hedged exposure that I prefer at this moment. In contrast, I have advocated for several months on behalf of iShares Currency Hedged Germany (HEWG) on the expectation that as the most successful exporter in the region, Germany will benefit the most from the battered euro. What’s more, HEWG’s uptrend is intact.
