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The Case for Europe · Trillions

• 0:06
  Speaker 1: Organize trains.
• 0:07
  Speaker 2: I'm Joel Webber and I'm Eric Belchernes.
• 0:12
  Speaker 1: So we spent last episode talking about why the US
• 0:15
  Speaker 1: is so great? Yeah, is there a contrarian take that
• 0:19
  Speaker 1: we should visit today?
• 0:21
  Speaker 3: Yeah, so a couple things.
• 0:23
  Speaker 2: First of all, yes, I still think the US has
• 0:26
  Speaker 2: some elements that are special. But this year so far, Joel, Europe,
• 0:30
  Speaker 2: which a lot of times gets dumped on narratively, it's,
• 0:33
  Speaker 2: you know, been in the doghouse for years. It's basically
• 0:37
  Speaker 2: tripling the S and P five hundred. This year it's
• 0:39
  Speaker 2: up nine ten S and p's up two point four percent.
• 0:42
  Speaker 2: You know, will it last or is another head fake?
• 0:44
  Speaker 2: I think it's a good time to give Europe at
• 0:46
  Speaker 2: least a strong case. You know, we were a little
• 0:48
  Speaker 2: negative last time, and I thought, you know, it would
• 0:50
  Speaker 2: be a good time to look at the other side
• 0:52
  Speaker 2: of the story and maybe there is a reason to
• 0:55
  Speaker 2: allocate there. We have on our team, in the broader
• 1:00
  Speaker 2: strategy team, there has been some research and data that
• 1:05
  Speaker 2: indicates it might actually be for real this time, and
• 1:08
  Speaker 2: I thought we should share all that, get it on
• 1:10
  Speaker 2: the table, and then the listener can can decide.
• 1:13
  Speaker 3: We'll let them be the jury.
• 1:14
  Speaker 1: Okay, so joining us, we're going to have your boss,
• 1:17
  Speaker 1: Gina Martin Adams, who's the chief equity strategist at Bloomberger Intelligence,
• 1:21
  Speaker 1: as well as Todd Son, who's the senior ETF and
• 1:24
  Speaker 1: technical strategist at Stratigis Securities, this time on Trian's the
• 1:32
  Speaker 1: case for Europe. Todd, Gina, welcome to Trillions.
• 1:37
  Speaker 4: Thank you, thank you for having us.
• 1:39
  Speaker 5: Great to be here with you guys.
• 1:40
  Speaker 2: Quick note here, Todd is such a trooper that he
• 1:44
  Speaker 2: is doing this from LaGuardia Airport in the pet relief Stagia.
• 1:49
  Speaker 2: If that's the first, and that is a first. So
• 1:50
  Speaker 2: if you hear any little background noise, that's why. And
• 1:53
  Speaker 2: if a dog peas on his leg, we promised we'll
• 1:55
  Speaker 2: let him re record that part. Okay, so just fy,
• 1:58
  Speaker 2: Thank you Todd for being a so dedicated eric.
• 2:03
  Speaker 1: I want to start with just what is the data
• 2:06
  Speaker 1: when you guys are assessing something like this, What are
• 2:08
  Speaker 1: you looking at beyond just indexes?
• 2:12
  Speaker 2: Right? So, one of the things that has been apparent
• 2:16
  Speaker 2: for a while is evaluations. Right in the US, the
• 2:19
  Speaker 2: average price to earnings ratio is very high.
• 2:22
  Speaker 3: In Europe it's lower.
• 2:23
  Speaker 2: That gap is pretty much I think at historical records, right,
• 2:27
  Speaker 2: So that's the data we would look at now. We
• 2:29
  Speaker 2: only we don't maybe go more than a couple feet
• 2:32
  Speaker 2: deep in the ETF world, but I work with people
• 2:34
  Speaker 2: who go deep into the number. So Gina has put
• 2:37
  Speaker 2: out some reports recently that talk about the weakness in
• 2:41
  Speaker 2: the US and ipso facto a little strength in Europe.
• 2:45
  Speaker 2: And then Todd put out a note that I read about,
• 2:49
  Speaker 2: I don't know three months ago where he said, I
• 2:52
  Speaker 2: think he called the case for Europe, but his thesis
• 2:55
  Speaker 2: was it can't get worse, which I thought, what an
• 2:58
  Speaker 2: investment thesis is, Hey, come invest here, it can't get
• 3:01
  Speaker 2: much worse. Anyway, that's sort of the state of Europe.
• 3:04
  Speaker 2: So I think we start with Geno with just you know,
• 3:08
  Speaker 2: the US weakness maybe and how that relates to Europe
• 3:12
  Speaker 2: maybe having some good signs.
• 3:14
  Speaker 4: Yeah, and it's very much the same the same case,
• 3:18
  Speaker 4: just in the polar opposite that you just made, where
• 3:20
  Speaker 4: Europe by November of last year was training at an
• 3:24
  Speaker 4: all time historic discount relative to the rest of the world.
• 3:27
  Speaker 4: The US was training at its PreK peak relative to
• 3:30
  Speaker 4: the rest of the world valuation premium. So the US
• 3:33
  Speaker 4: case the anti US case is really the opposite of
• 3:37
  Speaker 4: the pro Europe case when it comes to valuations. At
• 3:40
  Speaker 4: the same time, you have to work through the mental
• 3:43
  Speaker 4: gymnastics of what that really means, and what that really
• 3:45
  Speaker 4: means is expectations for the US going into twenty twenty
• 3:49
  Speaker 4: five were extremely high, whereas expectations for Europe are extremely low,
• 3:54
  Speaker 4: and momentum shifts in global stocks oftentimes occur because of
• 3:58
  Speaker 4: expectation extremes. There's almost no chance that the expectations embedded
• 4:03
  Speaker 4: in US stock prices can be met by US companies,
• 4:06
  Speaker 4: at least in the short term, and you have that
• 4:08
  Speaker 4: adjustment process that emerges, and we've seen that play out
• 4:10
  Speaker 4: real time through earning season, in particular with tech, where
• 4:14
  Speaker 4: suddenly we have competitives, competitors in the tech space that
• 4:18
  Speaker 4: no one thought it would exist three months ago. That
• 4:21
  Speaker 4: creates a very different environment for tech and for the US,
• 4:24
  Speaker 4: whereas for Europe there was no expectation for growth and
• 4:27
  Speaker 4: suddenly earnings estimate stopped falling. So it wasn't a fantastic
• 4:31
  Speaker 4: evolution of great news for Europe, but expectations were solow
• 4:35
  Speaker 4: they couldn't get much worse. And then we have decent
• 4:39
  Speaker 4: earnings come through, You've got the Central Bank still easying,
• 4:42
  Speaker 4: You've got some relief in terms of political pressure that
• 4:44
  Speaker 4: has emerged over the weekend with Germany, and that's been
• 4:48
  Speaker 4: enough to get a little bit of momentum moving in
• 4:50
  Speaker 4: the favor of Europe.
• 4:51
  Speaker 1: Can I say this differently and see how you react
• 4:54
  Speaker 1: to it? Is the US the ultimate growth story and
• 4:58
  Speaker 1: Europe is the ultimate value story?
• 5:00
  Speaker 4: Yes, I think that's a lot of what we're seeing
• 5:04
  Speaker 4: is also the US is the ultimate tech story and
• 5:09
  Speaker 4: Europe is in some cases the ultimate financial story. So
• 5:13
  Speaker 4: it's a growth value expectations dichotomy and sector performance diconomy
• 5:19
  Speaker 4: that creates an opportunity for Europe and probably puts the
• 5:23
  Speaker 4: US behind rest of the world at least in the short.
• 5:26
  Speaker 3: Rund Let's go ahead and bring you in.
• 5:28
  Speaker 1: What did you see as you were working on on
• 5:31
  Speaker 1: your thesis?
• 5:34
  Speaker 6: So I agree with Gina about low expectations, and to me,
• 5:38
  Speaker 6: it's all about sentiment as well. And one of the
• 5:41
  Speaker 6: funny ways I think I can sum up European ETFs
• 5:45
  Speaker 6: listening in the US is there's fifty ETFs, both combined
• 5:50
  Speaker 6: of the region as well as single country, and they
• 5:53
  Speaker 6: have about fifty seven billion assets, and keep in mind
• 5:55
  Speaker 6: the who've been around for about twenty five years or so.
• 5:59
  Speaker 5: Take that in comparison.
• 6:00
  Speaker 6: Relative to the ey Shares Bitcoin ETF, which has only
• 6:02
  Speaker 6: been around for about thirteen months, and that has the
• 6:04
  Speaker 6: same amount of assets. So along with the lines, if
• 6:07
  Speaker 6: it can't get any worse, we're talking about a newer
• 6:09
  Speaker 6: aspect class. It's the same amount of assets as what
• 6:11
  Speaker 6: is a cornerstone of investor portfolios for international and I
• 6:16
  Speaker 6: think along with just assets under management, you look at
• 6:20
  Speaker 6: product launches, issuers have given up on the space. There's
• 6:23
  Speaker 6: only been two European ETFs launched over the last six years,
• 6:27
  Speaker 6: and they're both very thematic, focused on luxury goods and
• 6:31
  Speaker 6: aerospace and defense. So I like that there's this apathy
• 6:33
  Speaker 6: from issuers. They're not really focusing on the region. I
• 6:35
  Speaker 6: think that's really interesting from an expectations and sentiment standpoint.
• 6:47
  Speaker 2: So Europe is having this nice pop, I'll call it
• 6:49
  Speaker 2: right up ten percent. That's a lot for Europe, but
• 6:51
  Speaker 2: the flows are not there. Normally, you know, you have
• 6:54
  Speaker 2: a little run, the flows will follow, at least some
• 6:56
  Speaker 2: models will go in. But there's there's been about just
• 6:59
  Speaker 2: shy of a billion dollars into European ETFs from US
• 7:01
  Speaker 2: investors this year. Now that compares to about eighty billion
• 7:05
  Speaker 2: that have just pumped into US equities as usual. My
• 7:09
  Speaker 2: thesis is that it would take six to nine months
• 7:12
  Speaker 2: to kind of overcome the feeling that we've seen this
• 7:18
  Speaker 2: movie before, or I call it a short film, where
• 7:20
  Speaker 2: it's two months of Europe and then all of a sudden,
• 7:23
  Speaker 2: the cues like a runaway bus just like runs over
• 7:27
  Speaker 2: Europe once again. And that's happened like ten times, and
• 7:30
  Speaker 2: so I understand the Pavlovian response to like not do
• 7:32
  Speaker 2: anything and just wait for the cues to come back.
• 7:35
  Speaker 2: Do you think this has legs basically? And do you
• 7:38
  Speaker 2: think that's when investors might actually turn around?
• 7:40
  Speaker 1: I love comparing this to short films, which is like
• 7:42
  Speaker 1: its own category in the Oscars, but like, did you
• 7:45
  Speaker 1: watch it?
• 7:45
  Speaker 4: Not?
• 7:45
  Speaker 5: Really?
• 7:46
  Speaker 4: I think that's the best picture, right, Yes, But I
• 7:50
  Speaker 4: think we need to think about how we measure the legs. Right,
• 7:54
  Speaker 4: there's a very distinct possibility that Europe gathers legs without
• 7:58
  Speaker 4: the ETF universe recognizing it. Because the biggest investor in
• 8:02
  Speaker 4: Europe is the European investor, and that's where you saw
• 8:05
  Speaker 4: the biggest flight from Europe occur is Europe. For Europe
• 8:08
  Speaker 4: was no longer a thing by twenty twenty four. So
• 8:11
  Speaker 4: I think first you probably get direct investments from Europe
• 8:15
  Speaker 4: in Europe. Some of that is a real nationalistic sentiment
• 8:19
  Speaker 4: that could emerge as a result of the political environment.
• 8:22
  Speaker 4: Some of it is a currency play, some of it
• 8:24
  Speaker 4: is a financial play as a result of the ECB.
• 8:28
  Speaker 4: But we may not actually see US investors contribute to
• 8:32
  Speaker 4: the European story in the form of flows in the
• 8:34
  Speaker 4: ETF landscape, and that we could still see Europe outperform.
• 8:39
  Speaker 4: I would agree to get the US investor interested in Europe.
• 8:42
  Speaker 4: It is a much much bigger hurdle. The US investor
• 8:45
  Speaker 4: is very isolated in their strategy. They think that all
• 8:49
  Speaker 4: they need to own is the US. The US is
• 8:51
  Speaker 4: the best way to invest in the globe. Is a
• 8:54
  Speaker 4: lot of the rhetoric that you hear from the US
• 8:55
  Speaker 4: investor base that theory will have to get dismantled through
• 9:01
  Speaker 4: several months, if not several quarters, maybe even several years
• 9:04
  Speaker 4: of evidence before the US investor capitulates and says I'm
• 9:07
  Speaker 4: going to fly into Europe. I'm gonna buy a bunch
• 9:09
  Speaker 4: of europe as an opportunity just is very unlikely it
• 9:13
  Speaker 4: could emerge. This is something that's very unique to this situation.
• 9:17
  Speaker 4: In a world where we have deglobalization as a centralized theme,
• 9:22
  Speaker 4: US companies will potentially have less access to the rest
• 9:26
  Speaker 4: of the world, will become much more isolated as inherent entities.
• 9:30
  Speaker 4: And if that's the case, then suddenly this thesis that
• 9:33
  Speaker 4: you can only invest in the US, you only need
• 9:35
  Speaker 4: to invest in the US in order to access global
• 9:37
  Speaker 4: markets really starts to go away. But that's a really
• 9:40
  Speaker 4: long term, long tail, secular possibility. It's not likely to
• 9:44
  Speaker 4: emerge in the next month or two.
• 9:46
  Speaker 2: And just to give some data behind that, Athnoscios on
• 9:49
  Speaker 2: my team Ransom numbers and the percent the last couple
• 9:53
  Speaker 2: of years, a lot of people overseas have invested in
• 9:55
  Speaker 2: the US. That's helped the markets. Europe, though the percentage
• 9:59
  Speaker 2: in in the US has plummeted this year, so they
• 10:02
  Speaker 2: are the ones driving this rally. But elsewhere in the
• 10:05
  Speaker 2: world it's still gone up. People like Asia still buying
• 10:08
  Speaker 2: the US, US still buy in the US. So it
• 10:12
  Speaker 2: is interesting. I have this narrative thing that I think
• 10:15
  Speaker 2: and narratives matter. I think they can change price can
• 10:19
  Speaker 2: change narrative, so if it goes up enough, then narrative
• 10:21
  Speaker 2: could be broken. But I think most people sit there
• 10:24
  Speaker 2: and think, well, look, yeah, maybe there's a mean reversion
• 10:27
  Speaker 2: trade here, but long term there's more growth in the US.
• 10:31
  Speaker 2: People here work crazy hours. You know. I wrote a
• 10:34
  Speaker 2: note about Jack Bogel, who said you don't need international
• 10:36
  Speaker 2: and he got more savage as he got older, and
• 10:38
  Speaker 2: here's what he's One of the lines he said was,
• 10:41
  Speaker 2: you know, everyone says I'm wrong. I said, for a
• 10:43
  Speaker 2: lot of reasons, you don't need an international and he
• 10:47
  Speaker 2: says something here, the third largest country in IFA is France.
• 10:51
  Speaker 3: The soul of hard work. He can't see.
• 10:54
  Speaker 2: I can't see that I'd make more money in Britain
• 10:57
  Speaker 2: or Japan, YadA YadA, or France where they could and
• 11:00
  Speaker 2: pass the law saying you had to work thirty five
• 11:01
  Speaker 2: hours a week. And I think generally Americans are like
• 11:05
  Speaker 2: in Europe, everyone's at the cafe at three o'clock. Yeah,
• 11:08
  Speaker 2: the companies actually run, but it's just just to get
• 11:12
  Speaker 2: enough done to not like go to hell. And I
• 11:15
  Speaker 2: think in the US it's everyone is in such fierce competition,
• 11:18
  Speaker 2: you get all this, all these flowers blossom in the
• 11:21
  Speaker 2: forms of new companies and growth and opportunity. How true
• 11:25
  Speaker 2: is that narrative and how hard will that be to
• 11:27
  Speaker 2: a race?
• 11:28
  Speaker 3: I think it's pretty true.
• 11:30
  Speaker 4: Frankly, though, I go back to my thesis that a
• 11:32
  Speaker 4: lot of that narrative also is about globalization. In the
• 11:37
  Speaker 4: era of globalization, where the US was becoming this global hegemon,
• 11:40
  Speaker 4: where the US was driving activity, where US corporates were
• 11:43
  Speaker 4: constantly seeking international locations for the destination of their products,
• 11:49
  Speaker 4: where they had a tremendous global dominance. Of course, the
• 11:54
  Speaker 4: US companies were more productive. At the same time, You're
• 11:57
  Speaker 4: absolutely right, the ructural landscape, the policy landscape in Europe
• 12:02
  Speaker 4: became less and less productive, more and more government interventionist.
• 12:07
  Speaker 4: I think you're at a moment now where Europe is
• 12:09
  Speaker 4: starting to recognize that, in particular in Germany. We saw
• 12:13
  Speaker 4: it very, very profoundly over the course of the last
• 12:16
  Speaker 4: year in Germany. The Germans themselves are recognizing that they're
• 12:20
  Speaker 4: taking a back seat economically and financially to the rest
• 12:22
  Speaker 4: of the world, and there's a lot of frustration there.
• 12:25
  Speaker 4: So I think there's a potential rallying moment for Europe
• 12:29
  Speaker 4: to think about privatization, think about ways to enhance productivity,
• 12:34
  Speaker 4: think frankly about how to form global relationships outside of
• 12:37
  Speaker 4: their relationship with the US. So you could make a
• 12:41
  Speaker 4: case that as Germany becomes tighter with China, for example,
• 12:45
  Speaker 4: as Germany seeks other markets to enhance his productivity and
• 12:50
  Speaker 4: global presence, you could see some pretty big sea changes
• 12:55
  Speaker 4: in Europe. The other thing that I would say that's
• 12:57
  Speaker 4: so fascinating to me with respect to Europe right now
• 13:00
  Speaker 4: is the countries in Europe that went through a reckoning
• 13:04
  Speaker 4: moment in the European debt crisis. Now, I know that
• 13:07
  Speaker 4: this is a long time ago. Not a lot of
• 13:08
  Speaker 4: us remember twenty eleven, but it was a big moment
• 13:11
  Speaker 4: in time for Europe, but only for the debt laden
• 13:16
  Speaker 4: what we called at the time pigs economies Portugal, Ireland, Italy,
• 13:20
  Speaker 4: Greece and Spain. Those economies have transitioned remarkably over the
• 13:25
  Speaker 4: course of the last decade in change. Those are the
• 13:28
  Speaker 4: areas of Europe that are starting to outperform most profoundly.
• 13:31
  Speaker 4: The best performing markets in Europe this year are Spain, Italy, Switzerland,
• 13:35
  Speaker 4: to a lesser degree. Germany certainly is participating, but where
• 13:38
  Speaker 4: did Spain and Italy come from? That comes from a
• 13:41
  Speaker 4: legacy of change, right, And in the European debt crisis,
• 13:44
  Speaker 4: they had a moment of reckoning, they had to write
• 13:47
  Speaker 4: size spending, they had to think about structural changes. Many
• 13:51
  Speaker 4: of those appear to have been enacted, and the economic
• 13:53
  Speaker 4: optimism in those peripheral economies is significantly greater than some
• 13:58
  Speaker 4: of the other legacy economies, like you is the example
• 14:00
  Speaker 4: of France or even Germany. So I think that, you know,
• 14:04
  Speaker 4: Europe is a conglomeration of countries and that's something that
• 14:07
  Speaker 4: we need to keep in mind as well. Europe has
• 14:09
  Speaker 4: one big entity, maybe not as investible as some of
• 14:13
  Speaker 4: these other smaller country markets that have been doing very
• 14:16
  Speaker 4: well over the course of the last year or so.
• 14:19
  Speaker 1: But to Ton's point earlier, there's like a dearth of products,
• 14:22
  Speaker 1: Like Todd, is there a big opportunity here to like
• 14:26
  Speaker 1: actually bring you know, some innovation and ETFs to this space.
• 14:30
  Speaker 6: So I totally agree with what Gene is saying about
• 14:33
  Speaker 6: the countries are changing, right how they function, and I
• 14:37
  Speaker 6: think this is where there is opportunity for active managers, right,
• 14:41
  Speaker 6: It's nearly impossible based on data to outperform US large
• 14:46
  Speaker 6: cap growth, but because Europe has struggled in terms of
• 14:49
  Speaker 6: performance for so long, I wonder if you're you have
• 14:54
  Speaker 6: an opportunity for active Europe. Not just active developed markets
• 14:57
  Speaker 6: because those are already just out there, but the there
• 15:00
  Speaker 6: are no active, straightforward European products, and I think those
• 15:05
  Speaker 6: managers can find, you know, the winners of this change
• 15:09
  Speaker 6: that's going on there. I do think it's really interesting
• 15:12
  Speaker 6: the constituency of Europe and ETFs are changing. They were
• 15:17
  Speaker 6: typically very financials heavy and that's still true, but consumer
• 15:21
  Speaker 6: staples influence in the Europe and ETFs has really dropped.
• 15:24
  Speaker 5: Over the last few years, and now you're seeing more.
• 15:27
  Speaker 6: Industrials take control and as well as technology, and SAP.
• 15:32
  Speaker 5: On a given day is the largest weight in Europe.
• 15:34
  Speaker 5: I'm not sure how many people know that.
• 15:35
  Speaker 6: If you put fifty people in a room, they might
• 15:37
  Speaker 6: guess it's a financial or a healthcare type of company,
• 15:41
  Speaker 6: but it's SAP and then there's ASML.
• 15:43
  Speaker 5: So I like that there's this change.
• 15:45
  Speaker 6: Going on and the way we invest in Europe, and
• 15:47
  Speaker 6: I do believe it also speaks to where actives should
• 15:50
  Speaker 6: focus in terms of ETF.
• 15:51
  Speaker 2: For Shures Todd, one more question for you is what
• 15:53
  Speaker 2: I've found as an ETF anaist over the years is
• 15:56
  Speaker 2: when it comes to emerging market countries and even developed
• 15:58
  Speaker 2: market countries, a lot of the money that would go
• 16:01
  Speaker 2: into say VGK, which is the larger Europe, is retail
• 16:05
  Speaker 2: and that's the money that's not biting right now. However,
• 16:08
  Speaker 2: if you take UK or France or Germany, there is
• 16:11
  Speaker 2: you know, about a billion in each of these single
• 16:13
  Speaker 2: country ETFs. But they tend to be used by traders
• 16:17
  Speaker 2: who are usually betting ahead of an election, and so
• 16:20
  Speaker 2: a lot of times, like the Brazil ETF comes to mind,
• 16:23
  Speaker 2: if there's some kind of a big event coming up
• 16:26
  Speaker 2: that's geopolitical, a lot of times you'll see flows Russian
• 16:30
  Speaker 2: ahead of that and they'll kind of it's almost like
• 16:33
  Speaker 2: a geopolitical sports book. They're like, I really think UK
• 16:36
  Speaker 2: is going to bounce with this election or this situation.
• 16:40
  Speaker 2: Do you think that is what we need to see
• 16:41
  Speaker 2: first is a couple traders get excited with the single
• 16:44
  Speaker 2: country ETFs, and then retail will follow with the sort
• 16:48
  Speaker 2: of bigger, broader ones later.
• 16:51
  Speaker 6: I think so that makes sense, and I'm not even
• 16:54
  Speaker 6: sure about retail, but I'm more so looking at the
• 16:57
  Speaker 6: model providers right so you can look at JP Morgan,
• 17:01
  Speaker 6: you can look at State Street and see what their
• 17:02
  Speaker 6: allocations are to Europe as well, and I don't see
• 17:06
  Speaker 6: much going on there right now.
• 17:08
  Speaker 5: So I think this is the great part about ETFs,
• 17:11
  Speaker 5: as that was mentioned.
• 17:11
  Speaker 6: You can place a bet on an event, outcome, election,
• 17:15
  Speaker 6: whatever it might be. But I don't know if Europe,
• 17:20
  Speaker 6: if retail, will follow along or not. It's just it's
• 17:22
  Speaker 6: not sexy enough. It's not leverage, it's not a reconductor.
• 17:25
  Speaker 6: I mean, what about two x pigs? Does that start
• 17:28
  Speaker 6: to get who reason? Does that start to get spicy?
• 17:30
  Speaker 6: And then Europe you can go through.
• 17:32
  Speaker 3: Put two x on anything and you'll get a couple
• 17:34
  Speaker 3: of bytes.
• 17:36
  Speaker 5: I boil it down to Okay, we'll retail come back.
• 17:39
  Speaker 5: I don't know.
• 17:39
  Speaker 6: And then when do the models start coming back to
• 17:42
  Speaker 6: overweight Europe? And I'm just not sure we're anywhere near
• 17:44
  Speaker 6: there yet. It will take far more outperformance for that
• 17:47
  Speaker 6: to continue.
• 17:49
  Speaker 2: And I have a question for you, Gina, does Europe
• 17:52
  Speaker 2: even have tech? I mean, you know, you think I
• 17:55
  Speaker 2: looked at the best performers in Europe, the financials have
• 17:58
  Speaker 2: driven it. They're up fourteen percent. But I'm looking at
• 18:00
  Speaker 2: the performers. I don't really see any tech e. Is
• 18:02
  Speaker 2: there even a europe Tech ETF. I mean not sure
• 18:05
  Speaker 2: if one exists, Todd would know real quick.
• 18:07
  Speaker 5: Uh it's almost like a.
• 18:14
  Speaker 3: Military intelligence.
• 18:15
  Speaker 6: Yeah.
• 18:15
  Speaker 4: There was one play in Europe with a semiconductor wave
• 18:18
  Speaker 4: and that was asml in uh U have SaaS out
• 18:23
  Speaker 4: of Germany, but these are not This is a very
• 18:26
  Speaker 4: small component of the European broader market and that's the
• 18:30
  Speaker 4: biggest reason I would suggest why Europe underperformed the last
• 18:33
  Speaker 4: two years is there just isn't a lot of tech,
• 18:35
  Speaker 4: and tech was the area of growth opportunity. It was
• 18:39
  Speaker 4: the area that led global indices, not just the US,
• 18:43
  Speaker 4: but global markets with the most tech exposure outperformed. Aka
• 18:47
  Speaker 4: Taiwan was a huge outperformer. So that legacy of limited
• 18:53
  Speaker 4: tech is a big part of the story for why
• 18:55
  Speaker 4: Europe was not performing. Now it's helping because tech dropped.
• 18:59
  Speaker 4: It was the only sector in the US that dropped
• 19:01
  Speaker 4: in January. You know, it's not been performing well so
• 19:05
  Speaker 4: far this year as investors are rotating into other opportunities
• 19:08
  Speaker 4: and tech has proven to be a bit of a laggard.
• 19:10
  Speaker 1: This really does feel like to bring it back to
• 19:12
  Speaker 1: that growth versus value thing, it's like growth will run
• 19:16
  Speaker 1: away with everything and then every once in a while.
• 19:18
  Speaker 3: Yeah, every decade, Yeah, value will show up and yeah.
• 19:21
  Speaker 4: Well, if you look at the long term, when did
• 19:23
  Speaker 4: Europe actually outperform for an enduring period of time. It
• 19:26
  Speaker 4: was in the two thousand and one to two thousand
• 19:28
  Speaker 4: and seven period when tech took a backseat to everything.
• 19:30
  Speaker 4: Tech was kind of there, but not outperforming everything, not
• 19:34
  Speaker 4: leading markets. We had a commodities boom, we had a
• 19:37
  Speaker 4: financial sector boom through a lending cycle. Those are the
• 19:40
  Speaker 4: type of that's the type of environment in which Europe
• 19:42
  Speaker 4: will outperform inevitably because of constituent bias and concentration.
• 19:53
  Speaker 2: One question, if you're somebody who has a large chunk
• 19:55
  Speaker 2: of your equity allocation in US ETFs, would you would
• 20:01
  Speaker 2: it make more sense just rotate to international and have
• 20:04
  Speaker 2: some Asia in there, or maybe just do Asia. How
• 20:06
  Speaker 2: does Europe compare to other regions relative to the US
• 20:10
  Speaker 2: in terms of this like possibly having a moment coming up.
• 20:14
  Speaker 4: Yeah, it's very interesting because China has actually performed very
• 20:19
  Speaker 4: very well so far this year, But India has been
• 20:22
  Speaker 4: officially in a bear market, so Asia is in the
• 20:25
  Speaker 4: eye of the beholder. What do you mean by Asia?
• 20:27
  Speaker 4: I have to say because if you think of Asia
• 20:30
  Speaker 4: as China, then it does appear that opportunities are emerging
• 20:33
  Speaker 4: in China, particularly now that we have tech plays emerging
• 20:35
  Speaker 4: as a potential competitor to the US. But Asia is
• 20:40
  Speaker 4: a very mixed bag because India is in a bear
• 20:42
  Speaker 4: market now, and we have to acknowledge that India had
• 20:46
  Speaker 4: some unique structural issues as well that elevated prices there
• 20:50
  Speaker 4: even as much as they were elevated in the US,
• 20:53
  Speaker 4: and now India is taking a back seat. So Asia's
• 20:55
  Speaker 4: a bit of a mixed bag. When you look at
• 20:57
  Speaker 4: Latin America, you also have a really mixed view between
• 21:01
  Speaker 4: Brazil and Mexico. Emerging markets in the Middle East and
• 21:04
  Speaker 4: Africa stand out for US as an opportunity, but the
• 21:09
  Speaker 4: investibility of that region is hugely, hugely questionable. How do
• 21:12
  Speaker 4: you even get access to that region, how do you
• 21:14
  Speaker 4: put money to work in that region? But that does
• 21:16
  Speaker 4: appear to be a region of the world where emerging
• 21:18
  Speaker 4: opportunities are huge. Yeah, definitely helps Japan and Australia are
• 21:23
  Speaker 4: areas of the world we haven't talked about. So if
• 21:25
  Speaker 4: you want to talk developed market, Asia, Japan and Australia
• 21:29
  Speaker 4: are two totally different markets. Japan is also in a
• 21:33
  Speaker 4: bit of a slump after leading along with the tech
• 21:36
  Speaker 4: wave until the middle of last year, and Australia is
• 21:39
  Speaker 4: a very commodity sensitive sector. So it depends on what
• 21:42
  Speaker 4: your thesis is. These are all very very different markets.
• 21:47
  Speaker 4: But right now, yeah, Europe kind of stands out relative
• 21:51
  Speaker 4: to the rest, mostly because of that valuation discount.
• 21:53
  Speaker 2: And can we talk about the currency real quick, because
• 21:56
  Speaker 2: Todd is old enough to remember, like I am the
• 21:58
  Speaker 2: about ten years ago, these currency GTFP like we're like
• 22:01
  Speaker 2: rock stars. So HGDJ was the big one heads Europe.
• 22:04
  Speaker 2: That one's up twelve percent this year, so two percent
• 22:06
  Speaker 2: better than regular Europe.
• 22:09
  Speaker 3: What about that?
• 22:09
  Speaker 2: Could yeah, could a strong dollar actually maybe bring people
• 22:14
  Speaker 2: in back to that currency heads trade?
• 22:16
  Speaker 4: Yeah? Yes, currencies are a big theme for us this year.
• 22:20
  Speaker 4: We've been focusing a little bit more on the en
• 22:22
  Speaker 4: than anything else. The en, you know, it is typically
• 22:24
  Speaker 4: a very risk off signal. The yen performing very well
• 22:29
  Speaker 4: would suggest that we're maybe some of our optimistic assumptions
• 22:33
  Speaker 4: regarding global equity performance should be questioned. But with respect
• 22:37
  Speaker 4: to Europe, there are quite a few people who suggest
• 22:39
  Speaker 4: that it was really the dollar rip that ultimately created
• 22:43
  Speaker 4: the downside for Europe and the second part of the
• 22:45
  Speaker 4: latter part of last year, because as the dollar was ripping,
• 22:48
  Speaker 4: the euro was the predominant downside risk that plays its
• 22:53
  Speaker 4: way through earnings in the short run in a very
• 22:56
  Speaker 4: very negative way. So we saw massive negative earnings or
• 22:58
  Speaker 4: vision momentums when the dollar was at its biggest rip
• 23:01
  Speaker 4: or it's biggest gaining at the point in which it
• 23:05
  Speaker 4: was gaining the most. Now we're seeing a little bit
• 23:08
  Speaker 4: of normalization there and that may be helping Europe. But generally,
• 23:11
  Speaker 4: if the euro gets cheaper, that's great for European exporters,
• 23:15
  Speaker 4: and a lot of these developed market European groups are
• 23:20
  Speaker 4: very sensitive to European exports. So if you get a
• 23:22
  Speaker 4: combination of China's growth improving and the Euro getting cheaper,
• 23:28
  Speaker 4: that's usually a pretty good sign that we're going to
• 23:30
  Speaker 4: get some earnings momentum emerging in Europe, and that may
• 23:32
  Speaker 4: be starting to price in.
• 23:34
  Speaker 6: For the less sophisticated folks out there who listen. I'm
• 23:38
  Speaker 6: always a fan of the fifty to fifty allocation fifty
• 23:40
  Speaker 6: hedge fifty unhedged.
• 23:43
  Speaker 5: Just because it's so hard to get a market right
• 23:46
  Speaker 5: and then get the FX right of it. And I
• 23:48
  Speaker 5: wonder if that's just the water down version of trying
• 23:51
  Speaker 5: to play Europe or international and there's ets for that.
• 23:54
  Speaker 5: So I like the fifty to fifty aspect.
• 23:56
  Speaker 1: Okay, so just speaking of ETFs for that, I thought
• 23:59
  Speaker 1: what you said arelier about this being a great opportunity
• 24:01
  Speaker 1: for active investors potentially if you could put together that
• 24:06
  Speaker 1: three X pigs or what have you.
• 24:08
  Speaker 5: What what would you.
• 24:09
  Speaker 1: Want this to look like for Europe if you could,
• 24:12
  Speaker 1: if you could get go into Europe and have exactly
• 24:14
  Speaker 1: what you want, what would it look like?
• 24:16
  Speaker 5: Well, I like to defend the industrial names.
• 24:19
  Speaker 6: I think you have to have some of the those
• 24:20
  Speaker 6: European tech because they've been a beneficiary of this.
• 24:23
  Speaker 2: Yeah and sorry.
• 24:29
  Speaker 5: Sorry too, s A P A, s M A, s
• 24:33
  Speaker 5: M L. And then the financials.
• 24:36
  Speaker 6: This is the first time I can remember that they're
• 24:37
  Speaker 6: actually leading and not causing a problem.
• 24:40
  Speaker 5: I think this is amazing that we have.
• 24:41
  Speaker 6: European financials are just stuck and higher, and I think
• 24:45
  Speaker 6: if you're really going to have an issue, whether it's
• 24:47
  Speaker 6: within Europe or within the global economy, you'll start to
• 24:50
  Speaker 6: see those names and their credit backdrop really deteriorate.
• 24:53
  Speaker 5: I'm sure Gina will be on top of that as well.
• 24:56
  Speaker 6: The European Financial eu f N, I think it's about
• 24:59
  Speaker 6: to hit new all time high. Eric's that's a long
• 25:02
  Speaker 6: time coming.
• 25:03
  Speaker 5: Historic.
• 25:04
  Speaker 3: By the way, there is a three x europe BTF.
• 25:06
  Speaker 2: There you go get some guts so much an assets
• 25:08
  Speaker 2: it has, Todd, Oh.
• 25:11
  Speaker 5: God, I don't even I don't even know what the
• 25:12
  Speaker 5: ticker is, to be honest.
• 25:13
  Speaker 2: It's b u r L twenty two million, which is
• 25:17
  Speaker 2: really small. That means no one cares, there's no juice.
• 25:21
  Speaker 5: No, but this is this is part of the argument.
• 25:23
  Speaker 2: But if you're a pops like this, one's up thirty
• 25:25
  Speaker 2: percent this year because it's cripple Europe need more though,
• 25:29
  Speaker 2: But you got some of these single stocky tips go
• 25:30
  Speaker 2: up thirty percent a day.
• 25:32
  Speaker 3: So this is just like child's play at this point.
• 25:35
  Speaker 1: All right, well we we have the thing that we
• 25:36
  Speaker 1: can watch now, uh Todd. Gina, thanks so much for
• 25:39
  Speaker 1: joining us on trillions.
• 25:41
  Speaker 4: Thank you for having us, Thank you very much.
• 25:48
  Speaker 7: Thanks for listening. To Trillions until next time. You can
• 25:51
  Speaker 7: find us on the Bloomberg Terminal, Bloomberg dot com, Apple Podcasts, Spotify.
• 25:57
  Speaker 5: Or wherever else you'd like to listen.
• 25:59
  Speaker 1: We'd love to hear from you. We're on Twitter. I'm
• 26:01
  Speaker 1: at Joel Webber Show. He's at Eric Waulchuna's.
• 26:06
  Speaker 7: This episode of Trillion's was produced by Magnus Hendrickson. Bye