Question: Regarding your article How to invest in Europe, I have had a quick look at VEU and it has a price to book ratio of 1.6. Seems large, should I be concerned?

I also looked at VTS (US equivalent to VEU I think from Vanguard). It has a price/book ratio of 2.9.

I’m looking to diversify beyond Australian Shares. My super and share investments are dominated by Australian exposure. I still have time on my side; aged 45, but don’t plan on working to 67 either.

Answer (by Paul Rickard): Not sure what the question is, but I wouldn’t be concerned about a price/book ratio of 1.6.

I don’t particularly like VEU for Europe because it is everything bar the US – Europe is less than 50%.

VTS, which is Vanguard’s ETF for the USA, has a price/book ratio of 2.9.

VEQ, which is Vanguard’s ETF for developed Europe, has a price/book ratio of 1.8.

Question: Is BHP a buy? Thinking of likely dividends and possible buybacks in particular?

Answer (by Paul Rickard): I think the answer comes down to your view on commodity prices, in particular iron ore and copper. The brokers, for what it is worth, are fairly bullish, with five buys and three neutrals. The current consensus target price is $27.45.

Dividends? I think that this is in the market, as BHP has a fairly clear policy to pay out a minimum of 50% of earnings. The brokers forecast that the FY17 dividend will be 81 US cents, up from 30 US cents in FY16.

Buybacks? Possibly – more so in response to the Elliott proposal, but with a new Chairman, I think it will take a little while before he embarks down this path.

Bottom line – I think BHP was a buy below $20, around $26, I am fairly ambivalent. I am playing BHP at index weight, recognizing that no one has a real handle on commodity prices. I think we might have seen the bottom, but notwithstanding the improving outlook for world growth, I am not confident to say that they will keep going up.

Buying for dividends? No.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.