Single Country ETFs Superior To Regions

August 22, 2017

This article is part of a regular series of thought leadership pieces from some of the more influential ETF strategists in the money management industry. Today's article is by Dustin Blodgett, a portfolio specialist and member of the Investment Committee at Accuvest Global Advisors in Walnut Creek, California.

At Accuvest Global Advisors, we are known as the “country” guys since we have been analyzing data at the country level and ranking countries for more than 12 years. However, more often than not, advisors ask what our perspective and opinion is from a regional standpoint.

Be it industry standard, human nature or habit, one often seems to want to group as much as they can, wherever they can.

Our belief is that countries matter, and that selecting investment opportunities at the country level offers the greatest outperformance opportunities.

We have written white papers detailing how country effects dominate sector effects, and we believe that, although countries may share borders and be considered in the same region or classification (e.g., emerging markets), each country is different from its neighbors and different from other countries that have similar market cap.

Mexico and Malaysia each share the same weight in the iShares MSCI Emerging Markets ETF (EEM) but are vastly different countries. France and Italy may share a border, but their economic and stock market performance can vary greatly. This is why we do not stop at the regional level, but dive deeper to analyze the data at the country level.

Europe Resurgence

Regionally speaking, developed and emerging Europe as a whole has been very unattractive for the last three years. With expensive valuations, poor momentum and sluggish fundamentals, Europe was our largest relative underweight in our country strategies.

Over the last 10 months, this has all changed. European countries have become much more attractive, representing seven of our top 10 ranked countries. Poland, Netherlands, France, Spain, Austria, and Germany lead the way, with the Nordic countries (Denmark, Sweden and Finland) ranking right after the top 10. Collectively, these countries share better-than-average short-term and medium-term momentum, and cheaper-than-average valuations. 

Accuvest takes an ETF-agnostic approach in deciding how we want to own each country. During our Investment Committee meeting, we discuss every available ETF for a given country and analyze several factors, including the underlying sector allocations, stock concentration, currency, liquidity, etc. We then decide, through that analysis, how we want to own each country.

 

Data as of 8/14/17; rankings are based on 34 countries

 

 

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