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Friends suspect the root of my rude mental health is a Sydney upbringing. Who can ponder their inner selves on the dunny when redback spiders lurk under every seat? As anxious as Steve Waugh, they call me.
The truth is I manage my emotions carefully. Just this week I’ve swum a mile offshore with seals and run along forest paths of lilac rhododendron petals. And just try being miserable driving an open-top Defender with a cigar and Megadeth’s “Peace Sells” at full volume.
Avoiding the comments under my columns also keeps me sane — although I do reply to emails at the address below. Sorry @vegemitesandwich! Frankly, there’s only so many times you can be called a bald twat before worrying that you may actually be thinning slightly on top.
The problem is that my mate David is quick to give me a weekly overview of your comments. Yup, he would report, hundreds of readers still agree that you are a knobhead for selling your US equities. Worst investor ever, they say.
I doubt the comments ceased when US stocks plunged a couple of months ago. Even if they did, it’s probably back to normal now shares have rebounded 20 per cent or so. Not that I mind. Frankly, I deserve the abuse.
That call in September 2023 was a bad one. Having completely sold out of my Vanguard S&P 500 exchange traded fund — which accounted for 13 per cent of my portfolio back then — the bugger has risen 36 per cent in pounds since.
If that weren’t enough, I put a third of the money from the sale into a US bond ETF that only returned 1.2 per cent in sterling terms until I sold it in April. Yes, it was supposed to provide low-risk ballast. Still annoying, though.
To be fair, I did say that if the S&P 500 continued to rally it should drag other equities with it. So I wouldn’t completely miss out. Indeed, the two other funds I topped up, Asia ex-Japan and Japan, have risen 20 and 14 per cent respectively. Likewise, my FTSE UK fund is 35 per cent higher.
Thus, my home bourse and a weak dollar saved me from looking even stupider. But I have no regrets as I believed US stocks were overvalued based on whichever measure you chose to throw at me.
Why then, and I cannot believe I’m even writing this, is my finger hovering over the buy button for US equities for the first time in almost two years? Gosh, I have to read that sentence again just to be sure I’m being serious.
Five reasons have suddenly bored into my head this week. And I fear they tip the balance of probabilities towards a long rather than short position, if only just.
The first is the flipside of my recent good fortune in having a sizeable exposure to sterling. (I have written before about the importance of having most of your money in the currency of your day-to-day liabilities.) I’m now acutely aware of my underweight position in dollars, which remains the denomination of almost two-thirds of the world’s trade invoices, loans, forex transactions, equities and central bank reserves.
Dollar dominance doesn’t scare me. What does is the latest Bank of America global fund manager survey that shows that asset allocators are the most underweight the greenback in two decades. There can hardly be a stronger buy signal.
Hence, too, the second reason I’m considering the S&P 500. In the same survey, more than half of global fund managers reckoned international shares will have the best returns over the next five years. Less than a quarter of respondents said the same for US stocks. Likewise, a Sentix survey of European investors is positive for the first time since early 2022.
My contrarian bones also rattle to the beating of the business drums for Europe. The latest ZEW survey of growth expectations shows that corporates have dismissed tariffs as a threat. Eurozone bosses are optimistic again.
That equals tick number three for doing the opposite and placing my bets on US companies. I am already a fully paid-up member of the US exceptionalism club. In this I am no different to anyone who has lived and worked there.
No, my issue was the price I was being asked to pay for these exceptional shares. Even now, the S&P 500 is probably 30-50 per cent too expensive relative to forward earnings or replaceable asset value if history is any guide.
But US shares have been so for ages — just after the financial crisis was the last occasion US shares were unequivocally cheap ex-ante. In hindsight, we know they were also attractive for years after that as they kept making new highs.
Another way US firms could be good value is a profits surge. Is this possible? Yes, if productivity takes off. It is already growing faster in the US than elsewhere. How sure am I that artificial intelligence won’t seriously move the needle?
Not very, which is why a productivity renaissance is the fourth reason to question my current underweighting. The other beautiful thing about rising output per input is you boost demand and wages without inflation and/or lower earnings.
In other words, a virtuous circle appears. And right now it would be drawn in sand already moist with hope. Global recession expectations are negative, and the Federal Reserve still has a relatively upbeat view of the US economy — thus why it didn’t cut rates on Wednesday. And what if peace suddenly breaks out?
So reason number five is the risk that equity investors wake up soon and say: what’s not to like? In that scenario all my ETFs do OK. But US stocks fly. I need to think it over with a Wellness Martini in my hand.
I’d be keen to read your comments. If I wasn’t at the pub.
The author is a former portfolio manager. Email: stuart.kirk@ft.com; X: @stuartkirk__
https://www.ft.com/content/38bdcbe6-6565-406a-a207-e97de8eac71b
