Is Europe a better bet than the blue-chips?

There has been no shortage of articles bashing the US dollar and the US economy lately. And if your willing to dig a little bit deeper you may find more positive references to the EU than ever before. While the political differences have made for the common remarks about Euro-Zone weakness because of infighting, the simple fact is that the numbers don't back up weakness. In fact quite the opposite…

Lets compare VFINX (the most widely held mutual fund in the world) to represent the broader S&P500 and VEURX (Vanguard European Stock Index) to represent the MSCI Europe Index.

In 2008 the world markets were brought to their knees. It seemed that the worlds stock markets were going to crash and burn. VFINX was down 41.22% for the year 2008. Europe seemed to be hit even harder, as VEURX was down a whopping 50.54%. Had you have bought VEURX on the first trading day of the year in 2008 you would have been left with less than half of your original investment.

Lots of articles and commentators have said the Euro-Zone is to fractured to compete, there are to many political ideologies, to much internal fighting, to many weak countries, etc… But other than the disaster of 2008, does that really hold true?

Look at some VEURX charts against VFINX charts:
1yr:
+25.14% VEURX
+17.44% VFINX

5yr:
+10.97% VEURX
-6.44% VFINX

10yr:
-2.25% VEURX
-23.98% VFINX

This week, Newsweek sited a study that shows the 2010 GDP of the EU should "nearly match that of the U.S. and China combined". Based on that, you could say that valuations of EU companies should be higher than those of US companies. Of course it's not quite that simple in a global economy, but one might expect the EU market to outperform the US market… again (as year to date VEURX is up 34.35% vs. 21.51% for VFINX).