Most U.S. investors are still in denial.
But the reality is that 2020’s red-hot technology stocks have stalled.
On March 8, the tech-heavy Nasdaq index pulled back more than 10% from its February peak.
That took the world’s leading technology index firmly into correction territory.
Last year’s tech darlings have fared even worse.
Tesla (Nasdaq: TSLA) peaked at $883 a share. It has since fallen to as low as $563 – a whopping 36% drop. Even after rebounding, it is still down about 30% from its peak.
Spotify (NYSE: SPOT) hardly fared better, dropping from about $364 to $261 – down about 28%.
Zoom (Nasdaq: ZM), the stock that became 2020’s verb, has fallen also by close to 30%.
If you’re invested in tech funds like Cathie Wood’s Ark Invest, I strongly recommend you take your money and run.
R.I.P., 2020 Tech Boom?
This should come as no surprise.
After an epic run, many U.S. tech stocks were trading at crazy valuations.
Yes, COVID-19 accelerated the digital economy. And yes, it compressed 10 years of advances into 10 months.
But the world is getting back to normal.
Vaccination programs in the U.S. and U.K. signal the end of lockdowns.
Massive stimulus programs will help major economies bounce back strongly.
And consumers around the world have excess savings to splurge.
The economic rebound is not a matter of “if” but “when.”
All this means that investors are having to reboot their thinking.
As the legendary hockey player Wayne Gretzky famously observed, “I skate to where the puck is going to be, not where it has been.”
And the puck is not heading in the direction of overvalued tech stocks.
Sure, tech stocks will continue to tease investors with their volatility and compelling narratives.
But savvy investors have already shifted their attention to what comes next.
Investors are taking their money out of tech stocks and investing it in value stocks at a rate not seen for many years.
Some have called it the “Great Rotation.”
These value stocks include airlines, retailers, banks, property companies, manufacturers, and food and drink companies.
Bullish on Britain
Here’s how this brings us to the shores of the U.K.
The British stock market has had a rough couple of decades.
First, there was the dot-com bust… then the financial crash of 2008… and then in 2016, the uncertainty of Brexit – the exit of the U.K. from the European Union.
Just how out of favor has the U.K. stock market been?
The leading U.K. index, the FTSE 100, is currently trading below the high it reached in 1999 – more than 20 years ago!
Most investors have simply given up on the U.K.
Yet change is in the air.
Brexit is done and dusted.
The vaccine rollout is going well – at the fastest pace in Europe, in fact.
The Bank of England – the U.K.’s version of the Fed – has pumped massive amounts of money into the economy to spur demand.
So signs are good that British blue chips are about to get a big boost.
Yes, the U.K. endured hard times.
But scratch the surface, and you see that the FTSE 100’s underperformance has been due largely to its completely out-of-favor sectors.
The FTSE 100 is dominated by banks, miners, oil companies, drugs, conglomerates and consumer-goods giants.
Many of these names may be familiar to American investors.
They include miners Rio Tinto (LSE: RIO) and BHP Group (LSE: BHP)…
Energy giants BP (LSE: BP) and Shell (LSE: RDSA)…
Pharmaceuticals like GlaxoSmithKline (LSE: GSK) and AstraZeneca (LSE: AZN)…
And banking giants like HSBC (LSE: HSBA) and Barclays (LSE: BARC).
Of course, none of these companies rivals the excitement of a tech unicorn.
But as a whole, they are solid, reliable companies with plenty of cash flow.
Put another way, the FTSE 100 is precisely the kind of “value” index that is coming back into favor.
Praise From a Perennial Bear
Boston-based GMO has always been known for its bearish view of the world.
GMO recently pointed out that U.S. stocks have only been this expensive at the height of the dot-com bubble in 2000 and right before the Wall Street Crash of 1929.
Like any good value investor, GMO expects prices to revert to their historical mean.
GMO predicts that almost all stock markets in the world will lose money over the next seven years.
It expects American stocks to lose 6.6% and global shares to lose 1.6% per year for the next seven years.
Emerging market stocks will fall 2%. Bonds of all stripes will lose value.
Agree or disagree, GMO has singled out one market as having the best prospects.
And that market is the U.K.
In fact, GMO predicts British stocks could make 3.6% a year over the next seven years.
By the GMO’s standards, that is a remarkably bullish view.
So how can American investors best play the “Bullish on Britain” thesis?
The iShares MSCI United Kingdom ETF (NYSE: EWU) tracks a market-cap-weighted index of U.K. stocks.
Specifically, the ETF invests in British large cap and midcap stocks that together make up 85% of the value of the U.K. stock market.
Add in the prospect of a rising British pound, and the U.K. just might turn out to be the best-performing global stock market of the next five years.
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