“You can get that US exposure cheaper in Europe at the moment, for example LVMH or Inditex.”
The benefit of these companies, which along with the rest of Europe will be hit the hardest in the coming months, is that investors can see how they managed during the financial crash in 2008.
“[These companies] got stronger through it,” Harrison adds.
Managing currency risk
When it comes to investors managing their currency exposure, it is a necessity to have a very good understanding of the companies their portfolios are invested in, says Papesh.
When the dollar appreciates, every unit of profit generated in a non-dollar currency translates into fewer dollars when brought back to the US. “It’s never really that simple though,” he adds.
Investors need to understand the specifics of the individual businesses within their portfolio, looking not just at where their sales occur, but what their cost base looks like.
They should also be focusing on whether revenues and expenses are in the same currency, or if there is a mismatch, whether the company hedges that FX exposure.
Otherwise, they are exposed to fluctuations in exchange rates which will add to the risk of owning these stocks.
“There are a lot of variables to consider and having a good grasp of both where and how companies are making money, goes a long way to effectively dealing with volatility across currency markets,” Papesh says.
Something else for investors to have in mind is to make sure to do a lot of analysis, whether picking stocks or funds.
This is especially true if investors are gaining their US exposure through passive funds or indexes.
“If you just buy the headline index, you are getting everything, and there will be some gremlins hidden within that index that you might want to try and avoid,” says Clark.
He points out that US fund managers are much more likely to avoid style drift, which aids investors to understand what they are putting in their portfolios.
“US fund managers tend to fit in their style boxes quite nicely, more so than international fund managers,” he says.
A large or mid-cap manager will be seeing the current sell-offs in the market as opportunities to buy “amazing businesses” with compound growth rates that, although slightly lower, are still looking better compared to the rest of the market.
Conversely, Clark adds, value managers are happy as they see growth investing as being “completely oversold”.
“In the US those agnostic multi-cap go-anywhere managers are few and far between.”
