Monday, January 01, 2007

Domestic vs International large value funds

Happy new year to all the readers of this blog. We looked in detail the different investment segments and their valuation in a series of articles in December. In this article, we will compare and contrast the domestic and international value funds to see which one is a better bet for the current year.

Primarily, we will look at VTV, the vanguard large cap value fund and EFV, the iShares MSCI EAFE value fund.

The top ten holdings in VTV are

XOM - Exon Mobil Corp has a P/E of 12
GE - General Electric Company has a P/E of 22
C - Citigroup Inc has a P/E of 11.4
BAC - Bank of America has a P/E of 12.2
PSE - Pfizer Inc has a P/E of 14.8
MO - Altria Group has a P/E of 12
JPM - JP Morgan and Chase has a P/E of 13.6
CVX - Chevron has a P/E of 9.6
AIG - American International Group has a P/E of 17.11
T - AT&T has a P/E of 19.4

The top holdings in EFV are:

HBC - HSBC Holdings PLC. The analysts seem to say there is some upside to this stock still.
TM - Toyota Motor Corp has a P/E of 15 and a market cap of 203 billionNestle
SA - no data is available.
VOD - Vodafone Group PLC has a market cap of 162 billion
RDS-A - Royal Dutch Shell PLC-Class A is selling for a P/E of about 10
Royal Bank of Scotland Group PLC - no good data available
STD, Banco Santander Central Hispano SA has a P/E of 12 and market cap of 116.5 billion
RDS-B - Royal Dutch Shell PLC-Class B is also selling for a P/E of about 10 and market cap of 230 billion
BNP Paribas - no good data available
BCS, Barclays PLC has a P/E of 13 and a market cap of 92 billion.

On doing a stock by stock comparison, the US equities inVTV seem a lot better with better ROE when compared to their EFV counterparts. The US equities also have lower P/E ratios and better earning growth prospects because of their better return on equity.

Interestingly enough, the US companies derive a good percentage of their revenues outside the US. So a weakening dollar should translate to better than expected earnings. The EFV stocks should benefit more from a weakening dollar if majority of their business is outside the US.

The comparison between these two in the past three months can be found below:
three month chart

The difference is starker when looking at the results in the last one year:
one year chart

Overall, the large value segment still looks attractive. Buying this asset class during dips in value should prove to be a good investment strategy for 2007.

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