CAPE Valuations March 2017

Home country bias.  The predilection for investors to invest their money in the country in which they reside, and therefore know the most about.  To varying degrees, most investors have at some point suffered from this.  Many still do.  When starting out, it makes sense to focus on those markets you know that little bit better.  Those companies you may use often, or at least are more aware of.

CAPE Valuations March 2017

An argument can be made that many domestic companies earn much of their revenues from abroad, which certainly adds a layer of diversification that in turn mitigates risk.  But that ignores those many markets worldwide which, at varying times, are attractively valued.  There are many ways to take advantage of this, but in this post I will be referring back to my December 2016 article on CAPE ratios, looking at the cheapest ten markets globally and listing their performance, year-to-date.

The CAPE Ratio

If you are not already aware of it, the CAPE (Cyclically Adjusted Price-Earnings ratio) was created by Professor Robert Shiller and works by taking the price of a market/stock/sector and dividing it by the average of ten years of earnings, adjusted for inflation.  I highly recommend the work of Meb Faber on the CAPE ratio if you want to find out more (https://mebfaber.com/).

CAPE Valuations March 2017

So who are the cheapest ten countries as of March 2017, and how would you go about investing in them?  I refer, as usual, to www.starcapital.de for this information (CAPE ratio in brackets):

  • Russia (5.9)

The iShares MSCI Russia Capped ETF carries a 0.62% expense ratio and has returned -0.26% in the past three months.

  • Czech Republic (8.9)

There is no ETF for the Czech Republic at present, although the Cambria Global Value ETF has a 7.1% exposure to the country, with an expense ratio of 0.69%.  It has returned 12.92% in the past three months.

  • Turkey (9.4)

The iShares MSCI Turkey ETF carries a 0.62% expense ratio and has returned 12.39% in the past three months.

  • Brazil (9.8)

The iShares MSCI Brazil Capped ETF carries a 0.62% expense ratio and has returned 9.69% in the past three months.

  • Poland (10.1)

The iShares MSCI Poland Capped ETF carries a 0.62% expense ratio and has returned 21.29% in the past three months.

  • Portugal (11.3)

The GlobalX MSCI Portugal ETF carries a 0.62% expense ratio and has returned 4.08% in the past three months.

  • Singapore (11.4)

The iShares MSCI Singapore Capped ETF carries a 0.48% expense ratio and has returned 10.89% in the past three months.

  • Spain (11.7)

The iShares MSCI Spain Capped ETF carries a 0.48% expense ratio and has returned 14.15% in the past three months.

  • Hungary (12.5)

There is no ETF for Hungary at present, although the Cambria Global Value ETF has a 8.2% exposure to the country, with an expense ratio of 0.69%.  It has returned 12.92% in the past three months.

  • Italy (12.7)

The iShares MSCI Italy Capped ETF carries a 0.48% expense ratio and has returned 5.49% in the past three months.

Summary

Overall, returns year-to-date have been rather impressive.  Had you invested in each of these nine ETF’s (representing the ten countries listed) at the start of the year, you would currently be looking at a cumulative gain of 10.07%.  One point to note is that these ten countries remain the same ten cheapest countries by CAPE valuation as in December last year.  I will post another update at the end of June to show six month returns.

Happy investing!

If you’d like to discuss anything contained in this article, contact me on Twitter @britishinvestor, or leave a message via the Contact page.

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