If there’s one frequently cited attribute of European equities, it’s that those stocks trade at noticeable discounts relative to U.S. equivalents. Those low valuations haven’t been enough to generate much out-performance against domestic stocks, though.
At a time when more market observers are encouraging investors to at least examine possibilities with ex-US developed markets fare, European stocks could be worth considering. The VanEck Morningstar International Moat ETF (MOTI) may prove to be a useful exchange traded fund because it combines the advantages of wide moat investing without being entirely dedicated to European stocks.
That implies MOTI can potentially mitigate some risk should those stocks disappoint. Still, MOTI, which follows the Morningstar® Global ex-US Moat Focus Index, is more than adequately positioned to benefit from upside generated by European stocks. For example, Germany and the U.K. account for almost 28% of the ETF’s geographic exposure. That isn’t the end of the fund’s European allocaitons.
MOTI Attractive Idea for Inexpensive European Stocks
The primary objective of MOTI’s underlying index is to identify wide moat stocks trading at compelling multiples. This is an admirable endeavor because some credible wide moat names can and do command elevated valuations. Fortunately, there’s a broad universe of inexpensive European stocks today.
“The trailing price/earnings ratio on the S&P500 stands at approximately 27 times, signalling that it would take 27 years for the average S&P 500 company’s most recent earnings to equal its current market capitalization,” noted deVere Group CEO Nigel Green. “In stark contrast, the same ratio for the FTSE 100 sits at a modest 11 times, the German DAX at 15 times, and Asian indices such as the Nikkei 225 and Hang Seng at 16 times and 9 times, respectively.”
Regarding attractive valuations on Japanese (Nikkei) and Chinese stocks (Hang Seng), it’s worth noting MOTI allocates almost 23% of its roster to those two countries.
European stocks and international strategies can also provide important diversification benefits to tech-heavy domestic portfolios. MOTI devotes 15.70% of its weight to the technology sector compared to almost 30% in the S&P 500. Additionally, with central banks in Europe readying interest rate cuts, it could be time for stocks on the continent to rally.
“We foresee a period of catch-up for these markets, fueled by central banks’ intentions to cut rates, which would usher in a new economic cycle, and as a raft of key data is looking to turn positive for the region,” concluded Green. “This anticipated shift is expected to be propelled by the substantial weight of economically-cyclical stocks prevalent in major European indices compared to the S&P500.”
For more news, information, and analysis, visit the Beyond Basic Beta Channel.
