Bob Homan: How nice it is to be a European investor

Bob Homan: How nice it is to be a European investor

December 3, 2024

Europe
Bob Homan (Cor Salverius Fotografie) 980x600

This column was originally written in Dutch. This is an English translation.

By Bob Homan, written in a personal capacity

Is Europe a lost continent economically? Perhaps, but it is a wonderful place to retire.

Since the financial crisis some 16 years ago, US stocks have outperformed European stocks. Much better, in fact. Whereas since January 2009, European equities gave 350% returns, US equities gave an incredible 800%. In euros, that's even 1.100%. Indeed, the dollar appreciated sharply against the euro over the same period. Because, remember? In 2008, you got $1.58 for a euro. Now it's just 1.05. We expect to see parity by 2025, with the dollar and euro worth the same amount.

Much of the yield gap can be traced back to the difference in economic growth, which is also reflected in corporate earnings growth. This growth differential between the US and Europe is expected to remain intact in 2025 as well. In addition, listed US companies are more often in the higher-growth sectors, think of the ‘Magnificent 7’ stocks. Moreover, they have higher margins.

A US investor made just 240% on their European stocks during that period. For them, the appreciating dollar worked the other way.

Take an investor with a global view of developed markets who is roughly 60% invested in the US and 40% in Europe. As a US investor, in 16 years, you have made a fine (800% times 0.6 plus 240% times 0.4 =) 576% percent return, but as a European investor, you even get to (1.100% times 0.6 plus 350% times 0.4 =) 800%. Our economic growth may be lower, but the European investor turn a lot better thanks to the strong dollar. Then, of course, European investors should not have a big home bias.

It is sometimes said that Europe, with its lagging economic growth and productivity, is a lost continent. That may be so, but remember that global investing, where you automatically invest a lot in the US, is a good hedge against underperforming European economies and equities as a European. So wonderful to be an investor in Europe, just don't accidentally invest too much in European equities.

 

 

Related posts