When you invest money it is important to understand the time period over which you are hoping for a return.
Some funds like ARK's wildly popular Disruptive Innovation ETF are based on long term 'megatrends' like the adoption of electric or autonomous vehicles. As their director of research explained in a recent edition of the Bloomberg Odd Lots podcast, they willing to adopt a 'short-term contrarian' position and make what may appear to be outlandish bets on companies like Tesla at very high valuations, if they think that the factors driving their high growth rates will justify these prices over at least a five year time horizon.
At the other end of the spectrum there were doubtless plenty of people trying to figure out a way to profit from the recent blockage of the Suez Canal by the container ship Ever Given. There may have been some way to do this but it's unlikely many individual retail investors could make money from such a ridiculously short-lived and arbitrary event. The recent turn towards 'value' shares reflects expectations between these two timeframes. Over the next year or two companies selling cyclical consumer goods look set to benefit from a post-pandemic spending splurge, while fears of inflation reduce the apparent value of tech companies whose profits lie mostly in the future.
For investors who now feel overweight in tech-heavy US funds then European markets offer the opportunity to invest in indicies dominated by more traditional companies engaged in the cyclical consumer economy. But there are some interesting choices to be made. The UK market looks undervalued and after a bleak winter the economy is opening up thanks to a remarkably successful vaccination programme. Meanwhile the rest of the continent is closing down again in the face of a 'third wave' of covid cases and a floundering EU vaccination scheme. So should investors favour the UK over Europe?
This is where it is useful to think about time. The UK may well do better than the EU over the next quarter or two, but a year from now it seems reasonable to assume they will have arrived at the same place with respect to vaccination and thew virus. The vaccination timetable is too short-term a factor for the retail investor to worry about.
On the fundamentals the UK still looks cheaper, but this may reflect factors such as the make up of the market and continued economic drag of Brexit. A fund like Vanguard's Developed Europe which includes the UK offers more diversity than a similar UK-only fund, especially for anyone based in the UK holding balanced funds which by design are already weighted with UK stocks.
