Terrorist attacks in London this morning sent global equity markets into turmoil.
While details of the tragedy continue to emerge, mutual fund investors with holdings in the U.K. and Western Europe have been left wondering how to respond. Our advice to investors is not to panic, even with investments in Europe.
Sam Stovall, chief investment strategist at Standard & Poor’s, says investors should “stay the course,” reminding them they should “let their investment decisions be driven by economic factors.”
Jean-Michel Six, chief European economist for Standard & Poor’s, commented that financial markets reacted “predictably” to the bombings.
“European stocks recorded their biggest drop in two years, while the Financial Times 100 index was down 2% at 1:30 GMT,” Six noted. Based in London, he said the longer term impact of today’s events are “difficult to assess, but past history suggests it should not be too dramatic from an economic standpoint.”
Stovall noted that shocks like the London bombings “take a toll on investors’ nerves,” as reflected by the average 3.2% one-day price decline of the S&P 500 Index following shocks such as September 11, the assassination of Kennedy, and the Cuban Missile crises. However, his research indicates that the market free-fall lasts no more than four or five days and that, on average, the S&P 500 has taken only 14 days to recover from past tragedies, excluding the Pearl Harbor bombings.
Pam Holding, co-manager of Putnam International Growth & Income Fund/A (PNGAX) said, “not wanting to trivialize this tragedy in any way, from a market perspective, we are looking at this as a buying opportunity.”
Holding said her fund used some of the downward stock price movements “to add to positions that we liked, where we saw the market was overreacting,” including insurance companies and certain financial stocks, which are usually the first to get hit following attacks of this nature.
“For example, insurance companies don’t cover terrorism and the risk of business interruption is typically low,” she noted. “Long-term, this will likely not have a negative effect on these kinds of stocks.”
Holding cautioned that if the attacks leads to lower consumer confidence in Britain and Western Europe, resulting in lower growth, it would obviously hurt the stock markets. However, she says she believes the market overreacted this morning.
Julian Mayo, the London-based director of research for the U.S. Global Eastern European Fund (EUROX) and U.S. Global Investors Global Emerging Markets Fund (GEMFX), concurred. “As with September 11, there will be some weakness short-term,” he said. “The U.K. fell over 2% initially, since then it has recovered a bit. Times like this are normally buying opportunities.”
Wendy Trevisani, co-manager of Thornburg International Value/A (TGVAX), said she doesn’t think “there should be long-term negative effects” from the London attacks, but urges prudence. “I think any dramatic price move on the back of these explosions may present a good buying opportunity, but there is no way to know it’s over,” she said.
The table below shows the ten U.S.-based mutual stock funds and exchange-traded funds that have the highest exposure to equities in the United Kingdom.
|MUTUAL FUND/ETF||EXPOSURE TO U.K. (%)||NET ASSETS (U.S. $)|
|DFA Invest Group United Kingdom Small Company Portfolio (DFUKX)||98.0||$17 million|
|iShares MSCI U.K. Index Fund (EWU)||94.4||$478 million|
|Henderson European Focus/A (HFEAX)||43.7||$157 million|
|TD Waterhouse European Index Fund (TDEUX)||43.0||$14.3 million|
|streetTRACKS DJ STOXX Fund (FEU)||39.6||$29.4 million|
|Ivy Fund:European Opportunities/A (IEOAX)||39.3||$173.1 million|
|iShares S&P Europe 350 Index Trust (IEV)||36.9||$1.14 billion|
|Goldman Sachs European Equity Fund/A (GSEAX)||36.2||$19 million|
|Scudder Greater Europe Fund/A (SERAX)||36.0||$100 million|
|California Investment:European Growth & Income (EUGIX)||36.0||$4.9 million|
Contact Bob Keane with questions or comments at: .