David Evanson and Oliver Pursche
Minyanville.com, Summer, 2012
You may be justifiably sick of hearing about Europe, and I will spare you the latest gory details. However, turning off the noise, albeit momentarily, does not do anything to abate your fears about what further deterioration in the EU might do to your portfolio. After all, the 27 nations that comprise the union are, in toto, a major trading partner for the United States. The tepid GDP forecasts here in the United States owe their existence in no small measure to the EU.
One unbelievably simple way to insulate yourself from further deterioration “over there” is to buy or bulk up on shares that generate 100% of their revenue here in the good old U.S. of A. Below if a list of them. Of course, there’s more than these, but the companies below are the ones that my firm likes and owns in the GMG Defensive Beta Fund, or in client accounts. Notably, the “I” in CCI stands for international, which seems anathema to our thesis. Crown Castle (CCI) owns cell towers in the US, Puerto Rico (technically the US), and Australia, definitely not the US, but the polar opposite, in many ways, from the EU.
Another way to limit your European exposure would be through ETFs or mutual funds that invest in utilities. There may be more to this than simply avoiding catastrophe. I believe low, low rates are here for the balance of this decade.
In fact, as portfolio managers, we no longer view bonds as a vehicle for generating income, but instead as a tool for lowering volatility. As such, if you need income, you might consider switching into utilities. Without question, there’s more risk moving capital from debt to equities, but the current interest rate environment may make this assumption of risk a necessity, especially if inflation rears its head. One ETF we like is the Vanguard Utilities ETF (VPU), currently rated four stars by Morningstar.