In a diversified portfolio, there is no way around US shares. But there is no way around European shares either. We take a look at the significance that shares and bonds from Europe have for our global ETF portfolio - as well as at the conditions shaping their further development.
If you browse the list of companies with the highest stock market weighting, it takes a while before you come across a European share. In mid-January, the first one appeared in 15th place: the Danish pharmaceutical manufacturer Novo Nordisk. The next European name followed in 22nd place with the French luxury goods group LVMH. The first German company, the software maker SAP, was in 58th place. The order is constantly shifting with price movements. But the top 100 are quite clearly dominated by US shares.
In quirion's global equity portfolio too, the emphasis lies on shares from North America (53.9 percent). At the end of 2023, European names were weighted slightly lower, at 20 percent, than shares from Asia (22.9 percent). "For how we put our portfolio together, market capitalisation is decisive," explains Philipp Dobbert, Head of Asset Management at Quirin Privatbank and at quirion. The aim of the investment strategy is a world market portfolio. "Capital market research has shown time and again: when it comes to the ratio of return opportunities to risks, such a portfolio is superior to any other."
The attempt to limit yourself to the supposedly "best" markets is a game of chance with very high risk. Because which ones will develop better than others, and exactly when, cannot be determined in advance. The clever approach, therefore, is to position yourself as broadly as possible on a lasting basis.
Europe's stock markets defy the economic weakness
Even if the US markets have, with their performance, once again outshone many others: over the past year, shares from Europe developed on the whole quite pleasingly. Economically, things weren't exactly dazzling in the euro area, mainly because of Germany's weakness. But inflation came down faster than many had previously expected. The markets began to "price in" interest rate cuts. In this way, European shares were able to continue their long-term upward trend in 2023.
What are the prospects for 2024? Even though no one can predict it precisely: great hopes of growth for the economy do not yet exist. Still: "The conditions could suggest that the growth gap between Europe and the USA is closing again somewhat," economist Dobbert expects.
The expectations for profit growth this year are considerably lower for companies from Europe than for companies from the USA and the emerging markets. What at first sounds sobering could turn out to be supportive of prices. Because more modest expectations limit the risk of disappointment. European shares are also valued relatively cheaply.
Less risk of disappointment - that's also the key word when it comes to key interest rates. On both sides of the Atlantic, the expectation of interest rate cuts has been buoying prices for months now. That said: "The ECB has not stoked these expectations as strongly as the US Federal Reserve," Dobbert notes.
Bonds for stabilisation
On the stock markets, the question always hangs in the air of whether the expectations already "priced in" really will be fulfilled, or whether it is time for a reassessment. That is the engine of short-term price movements. If you don't want to expose yourself to the swings of a pure equity investment: adding bonds can stabilise a portfolio.
"That said, exchange rate movements can partly undo the stabilising effect of bonds again," Dobbert explains. For bonds outside the euro area, one therefore turns to ETFs that are hedged against currency risks. But in order to fulfil the function of a volatility buffer as well as possible, the focus of quirion's bond portfolio lies very clearly on euro bonds, at 75 percent.
Whether with shares or bonds - for systematic investing in a diversified portfolio, one very basic principle applies: there is no getting around Europe as an investment region.
