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Main Website >>Investment Management / Alternative Investment >>Blog >> How Bad Is Europe?
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Roger Nusbaum, Chief Investment Officer, YOUR SOURCE FINANCIAL (RIA)

How Bad Is Europe?
Thursday, May 10 2012 | 02:15 PM
Roger Nusbaum
Chief Investment Officer, YOUR SOURCE FINANCIAL (RIA)

The chart tracks the S&P 500 SPDR (SPY) against what I believe are all of the Eurozone ETFs; iShares France (EWQ), iShares Spain (EWP), iShares Germany (EWG), iShares Italy (EWI), iShares Belgium, iShares Netherlands (EWN), iShares Finland (EFNL) and Global X Greece (GREK).

The YTD returns;
SPY +7.63%
EWQ +1.23%
EWP -18.50%
EWG +10.30%
EWI -7.67%
EWK +9.14%
EWN +1.57%
EFNL -7.76% (this fund started trading January 26)
GREK -10.15%

There really is a wide range of returns here. Germany and Belgium certainly are surprises as is Finland. Despite it going deathstar, Nokia (NOK) is still the largest holding in EFNL and no doubt contributes to that fund's poor showing (the next three largest holdings have all fared a little better than the fund).

For some reason Bob Pisani was on a jag yesterday about decoupling, saying no one likes it when he talks about decoupling but he said we're decoupling (except for Germany and The Netherlands). My thoughts on decoupling have been pretty consistent which is that any reasonable expectation should be for long term outperformance like Brazil being up 300% in the last decade versus a 24% decline for the S&P 500 (not including dividends). Over the course of a year anything can happen but expecting some equity market to go up 20% when the rest of the world is unraveling is not realistic.

The big macro for Europe has been the same for many years and will be the same into the future which is the demographics stink, the economic stats mostly stink, most countries are over indebted and desperate policy measures are not working as hoped for in terms of effect or time needed to have an impact. Over the years there have been comments generally disagreeing with my lumping Germany in with this avoid Europe theme although looking at a five year chart this has been correct more often than not.

Looking forward and thinking about Europe we will probably hear and read a lot of comments from various professionals about how they are investing in Europe. Some will be able to avoid but some cannot because of various mandates/constraints they must operate under. If you agree with the points made above about Europe, then how soon do you think any or all of them will change for the better? How you answer that question probably determines when you might want to get back into Europe. I don't think there is any visibility for meaningful improvement so we will continue to avoid the region.
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