Why it’s time for investors to diversify
Whether to continue stubbornly sticking to a seemingly ingrained home bias when investing depends in no small part on making a call that oil prices have bottomed out.
If it isn’t by now abundantly clear, let’s spell it out: while the Canadian energy sector’s performance during the first quarter has for the moment put an end to the precipitous decline it has sustained since last summer, many companies have announced significant budget reductions, dividend cuts and/ or raised equity.
Oil inventories have gone nowhere but up, and production cuts don’t appear to have materialized to satisfactorily address the demand/supply imbalance.
With the benefit of storage and associated speculative demand, the energy space and, by extension, our petro dollar are at the mercy of a possibly brutal final down leg in the price of crude.
We can cross our fingers this doesn’t happen, but if it does, further action on the part of Bank of Canada Governor Stephen Poloz is likely to be ineffective, and the country could well be on its way to a recession.
Equities in the U.S. market, meanwhile, have been the preferred investment destination for quite a while, but continued improvements may well depend on the next few quarters of earnings, which, according to S+P Capital IQ strategist Sam Stovall, don’t exactly compare well to previous quarters.
Apparently, a rescue as far as U.S. earnings are concerned is only expected to materialize in the final quarter.
Where does that leave investors? With the benefit of the onset of quantitative easing in Europe — some €60 billion a month — equities on the continent may well continue to enjoy further gains.
This is because the impact of the euro’s sharp decline since mid-2014 will take some time to translate into earnings gains, but, as this happens, further multiple expansion should accompany it.
With that backdrop — and recognizing the final tally isn’t quite in yet — take a look at the top performing international ETFs for Q1 2015 in the accompanying chart.
These aren’t by any stretch the only available choices, but they illustrate what is working performance-wise thus far in 2015. Whether momentum will carry these ETFs further remains to be seen, but there are several things worth noting.
International momentum ETFs, presumably courtesy of QE initiatives outside the U.S., have taken flight, taking a lead