Putt for dough from Europe and America
The last time Team Europe and Team USA met, it was not pleasant with America on the losing end of a score of 18½ – 9½. Later this week, the rematch will take place in Kildaire, Ireland and I hope the relative performance of the European and US equity markets so far this year is not a leading indicator.
I’ll be glued to the tube during games pulling powerfully for an American win, but the home court advantage for the Europe team will be hard to beat. The European team features veteran players from the UK and Ireland complemented by players from Sweden and Spain.
The Team Europe countries have certainly eclipsed the US in terms of return on investment this year. While the S&P 500 index was up 5.45%, the Spain ETF (EWP) was up 24.3%, Sweden (EWD) was up 19.2%, the UK (EWU) was up 18% and the closed fund New Ireland Fund (IRL). it is up 22%. The New Ireland Fund, managed by Bank of Ireland Asset Management, is close to a 52-week high and is trading at a 5% discount to its NAV.
Part of this performance is due to stronger currencies. For Spain and Ireland, the euro has risen 7.5% so far this year. Sweden opted out of the euro in 2003 and the Swedish krona and the British pound have also done well against the dollar. This is one of the benefits of investing in country-specific ETFs, as they are not hedged against the US dollar.
There are many parallels between golf and investing. When he was an investment advisor at UBS, he used to conduct popular golf club investment seminars titled “Why Great Golfers Make Great Investors.” Some of the points I made were that great golfers are well prepared and adhere to a clear game plan, they reward consistency and keep the ball on the fairway, they carefully calculate the odds of each shot, they have a team of coaches and caddies. talented (your financial advisers) and, most importantly, stay calm and get out of trouble with minimal losses.
US investors tend to underestimate Europe and fall victim to the common perception that Europe is a slow-growing bureaucratic region offering minimal opportunities. This overlooks the fact that Europe is home to many world-class multinationals that do business around the world. For example, the fact that Germany is a slow-growing economy prompts companies like Siemens and BMW to seek growth abroad.
Furthermore, investors should recognize the European pro-growth wing, less regulated and market oriented, better represented by the UK and Ireland. Americans like to think of themselves as the leaders of global capitalism, but maybe we’re getting a little too complacent.
The Heritage Foundation / Wall Street Journal Index of Economic Freedom is an objective economic yardstick that has been used for the past ten years to study and rate various countries.
The index is a careful analysis of how free an economy is and measures 161 countries against ten general factors of economic freedom. The findings of this study are simple: Countries with more economic freedom also have higher long-term rates of economic growth and are more prosperous than those with less economic freedom.
It may surprise you to learn that on the 2006 Index of Economic Freedom, Ireland ranks third, Luxembourg fourth, the United Kingdom fifth, and Denmark eighth. The United States tied for ninth place with Australia and New Zealand. Perhaps it is time for the United States to enact meaningful market reforms like the single tax and start rolling back progressive overregulation.
My advice to investors is to enjoy the competition and support your local team while combining all the countries in your global portfolio. The beauty of golf is that both Ryder Cup teams will play on the same golf course and under the same conditions. Team USA will have to be on top of their game to beat Team Europe. One thing is for sure: you cannot afford to be complacent.