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INTERNATIONAL STOCKS STILL LOOK ATTRACTIVE OVER U.S. EQUITIES

While international stocks outperformed U.S. equities handily in the first half of the year, with the MSCI EAFE index .dMIEA00000PUS up more than 17% compared with the gain of about 5% in the S&P 500 .SPX, that gap has narrowed since the calendar flipped to July.

But Ken Ryan, portfolio manager at Parnassus Investments, believes international stocks are worth looking at despite U.S. President Donald Trump's looming tariff deadline on August 1.

Ryan notes the valuation differentials between the two indexes are near all-time highs, "so just like you want to buy attractive stocks at attractive valuations, the same thing applies for asset classes," he said in an interview with Reuters.

Ryan also cited the benefits of diversification, the exposure to a variety of markets and a variety of trends, as it is difficult to determine which trends are going to garner the most favor at any given time.

Another factor to consider is U.S. dollar weakness, with the greenback coming off its biggest first-half drop since 1973, Ryan notes periods of softness in the greenback tend to coincide with periods of outperformance for international stocks.

And while tariffs may represent a headwind, Ryan notes that while some companies are exposed to the duties, "there's also a number of companies I could point out in the portfolio that have absolutely no US dollar revenue, absolutely no business in the US, and are completely out of this tariff conversation."

Ryan manages the Parnassus International Equity Fund, which lists Japan's NEC Corp 6701.T, Singapore's Sea Limited SEAT.SI and Germany's Deutsche Telekom DTEGn.DE among its top holdings.

As for regional weightings, the fund held a 43.4% weight in developed Europe, excluding the UK, as of June 30 and Ryan sees the likelihood for government spending over the next decade in the region as a potential boon.

"It just so happens that at the same time some of the spending is coming through, you're starting to see some of those green shoots even before the spending," said Ryan. "You're starting to see rates come down in Europe ahead of rates coming down in the U.S., and this looks like a pretty good backdrop to invest in."

(Chuck Mikolajczak)

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