Investing globally has been a difficult task in recent weeks.
Whether it has been concerns regarding tapering of quantitative
easing and the program's eventual end or news that Chinese banks
are facing a liquidity crunch, riskier assets have been hammered
by negative news flow. Diversified
offering exposure to Europe have been no exception.
In just the past month the SPDR EURO STOXX 50 ETF (NYSE:
) is down almost 10 percent while the Vanguard FTSE Europe ETF
) is off 9.1 percent. Still, some analysts have been bold enough
to predict a European economic turnaround as soon as the second
half of this year.
"The risk of increased market volatility over seasonally weak
summer months exists but we would look to take advantage of any
pullbacks, including this current one, to increase both cyclical
positioning and market exposure," said S&P Capital IQ Chief
European Equity Strategist Robert Quinn in a research note about
European equities. "We have greater conviction in an earnings
recovery;, excess liquidity is still supportive to equity markets
contrary to popular perceptions; and we expect easy monetary
conditions to facilitate an additional 10% multiple expansion for
the remainder of this year."
Quinn said he sees 2014 as a "credible recovery year" for
Europe while noting Eurozone M1 money supply leads GDP growth by
three quarters, which could imply a turnaround is not far off.
Investors have plenty of ETF options with which to play a
Vanguard FTSE Europe ETF The aforementioned VGK is one of the
largest Europe ETFs and makes sense for long-term investors as
its 0.12 percent annual expense ratio makes the ETF cheaper than
93 percent of comparable funds,
according to Vanguard data
Roughly 56 percent of VGK's weight goes to non-Eurozone
countries such as the U.K., Switzerland and some Nordic nations.
Perhaps more importantly in the event of another sovereign debt
flare-up, VGK's exposure to the PIIGS nations is just 8.8 percent
combined. S&P Capital IQ has Overweight ratings on European
banks and industrials, of which VGK does offer decent exposure
to. The research firm rates VGK Marketweight.
SPDR EURO STOXX 50 ETF The aforementioned FEZ does not hold 50
stocks, but a roster of just 56 does indicate a high level of
concentration. As such, FEZ has a beta of 1.3 against the S&P
500 and annualized volatility of nearly 26 percent,
according to State Street data
The good news is FEZ has a dividend yield of just over four
percent and banks and industrials - S&P IQ's favored sectors
in Europe - combine for over 35 percent of the ETF's weight. FEZ
is also rated Overweight. The $2 billion fund has annual fees of
PowerShares BLDRS Europe Select ADR Index Fund (NASDAQ:
) The PowerShares BLDRS Europe Select ADR Index Fund is somewhat
overlooked when it comes to Europe ETFs, but the fund has been
less bad than FEZ and VGK over the past four weeks. ADRU can draw
constituents from a universe of 100 stocks and is currently home
to 86 familiar names including HSBC (NYSE:
), BP (NYSE:
), Sanofi (NYSE:
) and Royal Dutch Shell (NYSE: RDS-A).
The U.K. and Switzerland combine for nearly half of the ETF's
country weight while PIIGS exposure is limited to about 10
percent with no noteworthy allocations to Greece or Portugal.
ADRU's underlying index, the BNY Mellon Europe Select ADR Index,
has slightly outpaced the MSCI Europe Index over the past five
according to PowerShares data
. S&P rates ADRU Marketweight.
iShares S&P Europe 350 Index Fund (NYSE:
) The $1.1 billion iShares S&P Europe 350 Index Fund is
another "diversified" Europe ETF that devotes a significant chunk
of its weight, over 48 percent, to the U.K. and Switzerland.
However, the potential upside of this ETF is that its Eurozone
exposure is also robust as Germany and France, the region's two
largest economies, combine for over 27 percent of the fund's
With a beta of 0.67 and a
standard deviation of 20.76 percent
, IEV is less volatile than FEZ. IEV has also outperformed ADRU,
FEZ and VGK over the past month. Top holdings include Nestle
), BP, Sanofi and Shell. S&P rates IEV Marketweight.
WisdomTree Europe SmallCap Dividend Fund (NYSE:
)In what might come as a surprise to some investors, the lone
small-cap fund on this list has been the best performer in this
group over the past month. That means DFE's 6.2 loss is less bad
than the other ETFs highlighted here. Like the other ETFs on this
list, DFE is U.K./Switzerland heavy with those nations
representing nearly 41 percent of the fund's weight.
However, DFE does a good job of mixing in the Eurozone's
riskiest countries, such as the PIIGS, with steadier plays such
as the Sweden and Norway. Industrials and financials combine for
over 41 percent of DFE's weight, and while the ETF features
a juicy 11.37 percent distribution yield
, the fund is light on defensive dividend sectors. Staples,
health care an telecom combine for about 17 percent of the ETF's
S&P Capital IQ rates DFE Marketweight.
For more on Europe ETFs, click
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