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I had breakfast with a European equities analyst this week

How have you done? I asked

We were top quartile over many periods, it’s a pity they closed our $300m fund

What?

Your company closed a top-performing European equity fund now? Here? At this point?

Yes, we couldn’t raise assets

Well surely you replace the sales team, or all take a salary cut, or sell the team to another outfit?

But to pay exit costs to stop here?

Sounds bonkers!

In Napoleon Hill’s book, “Think and grow rich”, he tells a story of a gold prospector who dug and dug but eventually gave up and sold his prospecting rights for nothing. But it turned out he’d given up three feet from striking gold so the new owner enjoyed all the spoils

That story has kept me in the trenches on more than one occasion – don’t give up if you strongly believe in the merits of your business or strategy, regardless of the short-term pain – find a way to stay in the game

In October 2007 the MSCI Europe had beaten MSCI North America
by:

10% over 1 year
38% over 3 years
75% over 5 years

Now passives weren’t a big thing back then, but unless human nature has changed, I’m pretty sure people were chasing European equity funds and selling US equity funds en masse

Roll forward 5 years and it was the COMPLETE opposite – North America had beaten Europe by:

9% over 1 year
36% over 3 years
29% over 5 years

Who’s surprised? We all know markets constantly change

So where are we today?

North America has whipped Europe by:

17% over 1 year
15% over 3 years, and
48% over 5 years!

Except, rather than learn from history, we now have companies selling listed products that offer 3x the return of Nvidia

and closing European funds..

The mind boggles

Anyone who follows football, hockey, or rugby, knows that a key goalscoring strategy, is to pass the ball and move into space. It’s not rocket science to know that it’s very hard to score goals when you’re surrounded by others

So at some point, surely savvy sovereign wealth funds, family offices, and hedge funds are going to top slice their US holdings – let’s say from 72% to 65%

And move that 7% across the pond – not a bad time with the strong USD..

The trouble is most US equities are very liquid – JP Morgan trades $1.5bn a day!

And that’s NOT the case outside the US – Lloyds trades only $64m a day!

So when that moment arrives, the prices of these cheaper non-US companies could really move

Meaning that maybe it’s time to “pass the ball” and “move into space”

And if you’re already “in space” like us and very underweight US equities

Keep digging, we might only be three feet from gold

DISCLOSURE
Ranmore Global Equity Fund holds only 19% of the Fund in US Equities compared to 73% in the MSCI World Index

The content of this marketing material is provided for information purposes only and is not advice

Past performance is no guarantee of future performance

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