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2 Top-Ranked Eurozone ETFs to Buy Now - ETF News And Commentary

Finally, the rounds of monetary easing in Europe are paying off and the Euro zone has picked up momentum with 0.4% growth in the first quarter, the highest quarterly growth in nearly 2 years. This was up from 0.3% recorded in the fourth quarter and in line with the market expectation.

With this, the 19-member Euro zone economy had a strong start to 2015 and outstripped the 0.2% growth for U.S. in the same period. The European Central Bank (ECB) will pump trillions of euros into the sagging Euro zone economy courtesy of its QE program that began in March and will run through September 2016. Cheap oil, higher exports and weak euro gave a further boost to the region (read: 3 European ETFs Leading the Market Higher ).

Within the Euro zone economy, France, which is Europe's second largest economy, led the way higher with a surprising 0.6% growth and outpaced Germany and Britain. This reflects the highest growth in two years for France. Italy also had a robust quarter as it returned to growth after years of stagnation. This country expanded 0.3%, marking the first quarter of growth since the third quarter of 2014.

Notably, Spain was the outperformer with 0.9% growth, reflecting its fastest growth rate since 2007 and the highest among the Euro zone nations. Robust performances in these countries were more than offset the disappointing performance by Greece and Germany.

Greece, struggling with its bailout program, slipped back into recession shrinking 0.2% following a 0.4% decline in the fourth quarter. Germany, Europe's largest economy, saw weak growth of 0.3%, down from 0.7% recorded in the fourth quarter (read: Will Recent Strong Gains in the Greek ETF Last? ).

Bright Outlook

Improving economic and business activity and growing consumer confidence are fueling growth in the economy. Deflationary spiral, a major threat to fragile economic recovery, seems to be coming to an end with Euro zone escaping four straight months of deflation. Notably, annual inflation was 0% in April. Unemployment across the Euro zone dropped to 11.3% as of March end, from 11.7% in the year-ago period.

Earlier this month, the European Union (EU) raised the growth outlook for Euro zone to 1.5% from 1.3% for this year despite the looming concerns of Greece defaults.

Eurozone ETFs to Buy

Given the recovering fundamentals and bright outlook for these economies, we recommend investors to buy Euro zone ETFs at least for the short term. For interested investors, we have found a number of top-ranked ETFs in the broad European space that have a Zacks ETF Rank of 2 or 'Buy' rating and are thus expected to outperform in the upcoming months (see: all the Top Ranked ETFs ).

Among these, the following two funds with the largest exposure to the Euro zone economies could be good choices to play in the coming months. This duo has enjoyed strong momentum and generated handsome returns in the year-to-date period. Further, these have potentially superior weighting methodologies which could allow them to continue leading the Euro zone in the months ahead.

iShares MSCI EMU Index Fund ( EZU )

This product provides exposure to the EMU member countries (those European Union members that use the Euro as currency) by tracking the MSCI EMU index. EZU is one of the most popular ETFs in the broader European space with AUM of nearly $10.3 billion and average daily volume of more than 7 million shares. It charges investors 0.48% in annual fees (read: Bulls Riding Europe with These Top Ranked ETFs ).

The fund holds about 248 securities in its basket with none holding more than 2.95% share. The ETF is a large cap centric fund as about 81% of the portfolio is concentrated on this market cap level. The product has a definite tilt towards financials at 23.3%, followed by consumer discretionary (15.0%) and industrials (12.6%).

From a country look, France and Germany take the largest share in the basket with 32% and 30%, respectively, while Spain, the Netherlands and Italy round off the top five. The fund has returned nearly in double digits so far this year.

SPDR EURO STOXX 50 ETF ( FEZ )

This fund follows EURO STOXX 50 Index, which measures the performance of some of the largest companies across the components of the 20 EURO STOXX Supersector Indexes. The fund appears rich with AUM of nearly $5 billion, and average daily volume of more than 2.5 million shares. Expense ratio came in at 0.29% (see: all the European ETFs here ).

Holding 55 securities in its basket, the product is pretty well spread out across components with no firm making up for more than 4.90% of assets. The ETF is skewed toward financials, as it takes about one-fourth of the total assets, while the other sectors receive modest exposure.

In terms of country allocations, France and Germany are leading with 35% and 31.9% share, respectively, followed by Spain (12.8%), Italy (7.8%), the Netherlands (7.7%), Belgium (3.6%) and Finland (1%). The fund is up nearly 8% in the year-to-date time frame.

Bottom Line

Given the current trends and increasing confidence, Euro zone will likely get a boost. So a solid play on the region might be a good idea. This is especially true if investors take a closer look at the top ranked ETFs in the space for excellent exposure and some outperformance in the coming months.

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ISHARS-EMU IDX (EZU): ETF Research Reports

SPDR-EU STX 50 (FEZ): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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