Buy 3 European Funds as Macron Wins Parliamentary Majority

European equity markets registered strong gains recently after the Emmanuel Macron-led La Republique en Marche! party secured a majority in the second round of the French parliamentary election. The stupendous victory of La Republique en Marche! in the National Assembly elections raised hopes of Macron immediately implementing new reforms that will not only benefit France but also the European Union (EU).

Banking on the positive vibes, the addition of mutual funds having significant exposure to European securities could prove lucrative. Now, let us take a look at some of the encouraging factors that contribute to gains in European mutual funds.

Macron's Victory inParliamentary Election Boosts Sentiment

La Republique en Marche! registered the best majority in the French parliamentary election in the last 15 years, by securing 308 of the total 577 seats. Investors welcomed Macron's second victory after he won the presidential election last month. Macron secured 66% votes, which in turn put an end to "Frexit" woes.

European stocks reached its best level since April after Macron's victory. Both the CAC Mid 60 and CAC Small indexes reached their all-time highs this week. Further, the CAC Mid 60 and CAC Small indexes increased 16% and 12%, respectively, after Macron became the youngest president of France. The benchmark index, CAC 40 also rose 5% during the same period.

Macron's victory in the parliamentary election raised hopes over his ability to implement his job-market reforms. His reforms include allowing companies to control employee working hours and wages and restricting damages for unfair dismissals as well as cutting capital and wealth taxes.

Incidentally, France's labor cost is highest in the region and recent polls have indicated wide ranging support for labor reforms. This in turn boosted investor optimism and had a positive impact on the EU. If Macron indeed succeeds with these reforms, chances of similar changes across the entire Eurozone will improve significantly.

Eurozone Economy Continues To Expand

The Eurozone economy expanded faster than expected in the first quarter of 2017. The single currency economy witnessed a growth rate of 0.6%, better than EU statistics agency Eurostat's earlier forecast of 0.5% expansion. The Eurozone performed better than the United States when considering the annualized economic growth rate during the January to March period. While the Eurozone increased 2.3% during the first quarter, the U.S. economy rose only 1.2%.

Also, the Eurozone economy has increased for the second consecutive month this year. According to IHS Markit Economics, GDP in the region increased from 54.4 in January to 56.0 in February, marking the best reading since April 2011.

Further, in its spring forecast, the European Commission raised its growth outlook for the Eurozone and the broader EU. The European Commission now expects the Eurozone to grow 1.7% in 2017, surpassing its previous estimate of 1.6%. Meanwhile, the EU is expected to remain constant at 1.9% growth this year.

Buy These 3 European Mutual Funds

All the reports clearly indicate that Europe's economy is stabilizing. Moreover, the Vanguard FTSE Europe ETF gained 7.1% and 15.6% over the last three months and six months, respectively.

Additionally, mutual funds related to the European equity market also registered strong returns. According to Morningstar, the region's equity mutual funds posted three month, year-to-date (YTD) and one-year returns of 8.6%, 15.4% and 16%, respectively.

This upbeat backdrop calls for investing in three European mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have impressive three-month and YTD returns. They also have minimum initial investment within $5000 and low expense ratios.

We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.

Invesco European Small Company Y ESMYX seeks appreciation of capital for the long run. ESMAX invests the lion's share of its assets in equity securities of small-cap European companies. Small-cap companies are those whose market-cap is similar to companies included on the Russell 2000 Index. ESMAX mostly invests in depositary receipts and equity securities.

The fund has three-month and YTD returns of 10.2% and 20.4%, respectively, and an expense ratio of 1.15% as compared to the category average of 1.39%. ESMYX sports a Zacks Mutual Fund Rank #1.

Putnam Europe Equity A PEUGX seeks growth of capital. PEUGX invests heavily in equity securities of large and mid cap European companies. PEUGX uses a "blend" strategy to invest in a company depending on factors including valuation, growth prospect and cash flows.

The fund has three-month and YTD returns of 7.2% and 14.8%, respectively, and an expense ratio of 1.31% as compared to the category average of 1.39%. PEUGX has a Zacks Mutual Fund Rank #2.

T. Rowe Price European Stock PRESX seeks long-term capital appreciation. PRESX invests a major portion of its assets in companies that are located in Europe or whose operations are related to this region. PRESX generally invests in common stocks of companies irrespective of their market capitalization.

The fund has three-month and YTD returns of 9.7% and 18.5%, respectively, and an expense ratio of 0.96% as compared to the category average of 1.39%. PRESX has a Zacks Mutual Fund Rank #2.

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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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