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3 Ways to Handle the European Drop

European stocks kicked off the week with yet another drop. The move followed more bad news from, you guessed it, Greece: The country indicated its budget deficit would be higher than the target it was supposed to hit to keep receiving aid from the International Monetary Fund, the European Union and the European Central Bank, as the WSJ explains.

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For American investors, this latest drop again raises the question of how much exposure a portfolio currently has to the troubled continent — and how that exposure can be safely reduced. Here are a few first steps:

Take a closer look at your funds. A typical diversified international fund likely has between 30% and 50% of its assets in European stocks, because so many major multinational companies are based there, says Todd Rosenbluth, a mutual fund analyst with Standard & Poor’s. Check your funds’ websites, or third-party researchers like researcher Standard & Poor’s or fund tracker Morningstar, for information about their holdings. In the total market, European stocks represent about 50% of non-US stocks, so that’s a good benchmark to judge your portfolio’s exposure against, says Chris Philips, a strategist in Vanguard’s Investment Strategy Group. Morningstar’s Instant X-Ray tool will let you look at a group of funds together.

Take a step back. Remember that every time you sell something, someone else is buying it — and as a retail investor, it’s probably best to assume that buyer is more sophisticated than you are, Philips says. Ask yourself if that sophisticated buyer might know something you don’t. Also keep in mind that despite the fact that the debt problems in Europe have been widely known for quite some time, from July of last year through about April, European indexes rose about 30%. The headlines may be about Greece, but the current market moves are likely about fears of a global recession and greater volatility in general, Philips says. If you’re still concerned about the volatility in Europe, it’s possible you simply have too much stock exposure in general; in that case, it may be time to cut back, he says.

Move carefully. If you are going to adjust your portfolio, think carefully about which funds or exchange-traded funds you’ll be buying and selling. Check with the fund company or your broker to see if you’ll pay redemption fees for selling or a front-end fee for buying, Philips says. And despite the recent volatility, it’s pretty likely you’ve seen some gains, so be sure to ask your broker or fund company to help you figure out which specific shares or groups of shares to sell, so you can try to avoid an extra tax hit, he says.

For more on managing your exposure to Europe, see our earlier posts on international funds’ exposure to European banks and building a Europe-free portfolio.


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    • v-i tried listening to it and had to stop after about 3 mnitues.the guy is a conspiracy theory nutball and a hysteric.media blackout? seriously? what, the financial press doesn’t report bad news about banks? i can see saying they don’t understand, but he really veered into tin foil hat territory.he’s also monstrously wrong with that 93 or 97% number he tossed out for cds exposure.this is especially true of greece. german landerbanks were some of the big writers of CDS’s there as were many other continentals. this is going to keep germany and france, who are driving the process firmly in the “it has to be ‘voluntary’ ” camp.he’s also wrong about what’s going to determine whether the CDS’s trigger. that’s all going to come down to greece and how they structure it and the rest of the negotiation. after that, it’s all very cut and dry and loss ratios and whether or not a default occurred will be up to greek courts.they have the not insignificant ability to change the law on their side and they know how the CDS definitions of default work.sovereign CDS’s are going to turn out to be money flushed down the drain. a soverign has too much power to change the rules and too much leverage to force “voluntary” capitulation to ever trigger them. it’s ironic that buyers of CDS’s were mostly concerned about the risk or a counterparty being unable to pay, when that was never the issue.after 3 mnitues of almost entirely bad data, wild conspiracy claims and illuminati type thinking backed by hysterics about an implausible impending disaster based on flawed numbers, i just had to shut it off.that guy sounds deranged and uninformed.was there some specific part of his thesis you were interested in?

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