Three things have led Systelligence CEO Kevin Miller to move money from his fund management company to European equities and away from U.S. equities: The decline in the dollar, the underperformance of European equities this year compared to the US, and expected volatility copy in the elections in November.
The WSJ US Dollar Index BUXX,
has been down 8.8% since closing high on March 23rd.
Here is a comparison of performance for the MSCI Europe Index (in US dollars) and the S&P 500 Index SPX,
reinvested in 2020 with dividend):
FactSet
Miller and his team manage approximately $ 635 million through the six E-Valuator funds, which have listed allocations between shares and bonds, as mentioned below. They are intended as an alternative to target date funds, which split between equities and bonds depending on when the investor expects to retire, but which can also have large differences in these allocations. (Miller said that among 57 funds with 2020 targets, allocation allocations ranged from 12.4% to 60.1% at the end of 2019, according to data provided by Morningstar.)
The E-Valuator funds let the investor decide how risky an allocation should be in a broad, global, “fund of funds” investment, and decide when to change their allocation by moving to another fund.
As the U.S. stock market neared its bottom in March, the stock components of the E-Valuator funds shifted more toward U.S. equities with an emphasis on mid-cap and small-cap exposure. Then in the first week of July, Miller decided to “take some of the profits off the table” and reduce the total exposure to equities a bit, he said during an interview.
“In the last few weeks we have spent and spent more money abroad. The dollar is now weak enough, and the international markets have been brutally beaten for a long period. A little heartbeat from her would be a big win from our perspective, ”Miller said.
“If you keep an international security and the dollar falls, you get a premium just in the currency exchange,” he added.
Miller expects the dollar to continue its decline.
“Every time you come up with more incentives and print more money, your currency will weaken,” he said. He also loves the European exposition, as we look at what higher volatility in the US could be like before the November elections.
When moving the allocations of the portfolios, Miller will use passive and active cars. Here are five that he mentioned as an exposure to European equities:
• FlexShares International Quality Dividend Dynamic Index Fund IQDY,
• iShares Core MSCI Total International Stock ETF IXUS,
• Vanguard Total International Stock ETF VXUS,
• PGIM QMA International Equity Fund PJRQX,
• Baillie Gifford International Growth Fund BGESX,
The last two funds mentioned above are actively managed; these are the institutional share classes, which have the lowest management costs.
E-Valuator funds
Each of the funds is designed to hold a different allocation of equity and debt claims, and to stay within the said available allocation range:
E-Valuator Highly conservative (0% -15%) RMS Fund EVVLX,
This fund will never be allocated more than 15% to equities. It has been rated as two stars (out of five) in its Morningstar category. However, this category is US funds with an equity allocation of 15% -30%, because Morningstar does not have a category 0% -15%.
• E-Valuator Conservative (15% -30%) RMS Fund EVCLX,
that is rated three stars by Morningstar.
• Conservative-moderate E-Valuator (30% to 50%) RMS Fund EVTTX,
This was once the E-Valuator Tactically Managed RMS Fund. It was changed to the current allocation strategy in February 2019. It is rated as two stars in its Morningstar category. However, the assessment is based on three years and the fund worked only a year and a half under the current draft.
• E-Valuator Moderate (50% -70%) RMS Fund EVMLX,
that is rated three stars by Morningstar.
• Growth of E-Valuator (70% -85%) RMS Fund EVGLX,
four stars rated by Morningstar.
• E-Valuator aggressive growth (85% -99%) RMS Fund EVAGX,
rated three stars by Morningstar.
Miller said the Morningstar allocation categories are also based on three-year averages. This means that the current allocation of a fund can be mostly intrinsic value, even if it is in a category that indicates a slight exposure to equities. But the E-Valuator funds have to keep their alliance allocations in the said range too alone.
Looking ahead to 2021, Miller expects “a solid year” for the U.S. economy and stock market. “I would strongly bet that we will have an infrastructure deficit in the first six months of 2021, regardless of who wins the presidential election,” he said.
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