Markets

Europe ETFs Advance Amid Improved Economic Signals

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Best ETFs 2015:February Performance Update

E xchange traded funds holding growth stocks, European equities and precious metals were top performers in recent weeks amid a slightly improved market outlook outside the U.S.

"Equities are being helped by signs of economic stabilization in Europe and Japan," Russ Koesterich, BlackRock's global chief investment strategist, commented Feb. 17. "We expect global growth to steady after declining last year."

SPDR S&P 500 ( SPY ), tracking the broad stock market , has rallied since falling below its 50-day moving average line in mid-January and is now up 2.06% year to date.

Among the best ETFs in 2015 so far,First Trust Dorsey Wright Focus 5 ( FV ) topped every other U.S. diversified equity ETF, gaining 4.9%. A fund of funds, it offers exposure to the five First Trust sector- and industry-based ETFs with the best shot at outperformance. It now allocates 25% to biotechnology stocks and 21% to health care, with smaller weightings to the consumer staples, consumer discretionary and Internet sectors.

The Focus 5 fund skews toward midcap growth stocks, a category that has won investor favor in recent weeks. Its peeriShares S&P Midcap 400 Growth ( IJK ) has risen 4.6% so far in 2015. Among the fund's top holdings:Equinix ( EQIX ),Hanesbrands ( HBI ) andSkyworks Solutions (SWKS).

Growth companies tend to expand faster than the overall markets. Midcaps hold stronger earnings growth and performance potential than both mega caps and small caps, but are also currently overvalued, experts say.

While allocating to foreign equities, investors showed a strong preference for Europe. The European Central Bank recently launched a massive monetary easing plan to stimulate businesses in the region.

In Q4, eurozone GDP rose 0.3% over Q3, beating estimates. Germany, Spain and the U.K. turned in strong showings. "Thus far in 2015, many European-focused equity ETFs have outperformed U.S. ones," S&P Capital IQ's Todd Rosenbluth wrote Feb. 17.

WisdomTree Europe Hedged Equity (HEDJ) and iShares Currency Hedged MSCI EMU (HEZU) have soared 11.5% and 10.9% in 2015. By hedging out the euro's decline against the rising U.S. dollar, these funds buffer the risk to returns from foreign investments held in local currency.

The Hedged Equity fund recently surpassed $10 billion in assets. It not only mitigates currency risk but also offers exposure to European dividend-paying exporters. A weakening euro may make European exports more attractive abroad, which should benefit the fund.

Currency volatility polished the allure of precious metals. Among sector funds, gold miners prevailed in investors' flight to safety.IShares MSCI Global Gold Miners (RING) has rallied 17% year to date.Market Vectors Gold Miners (GDX) advanced 15.7%.

Among commodity funds,ETFS Physical Silver (SIVR) surged 10.1%, and iShares Silver Trust (SLV) gained 9.8%. PowerShares DB U.S. Dollar Bullish (UUP) gained 3.9% as the euro recently hit 11-year lows relative to the U.S. dollar. The fund's peer WisdomTree Bloomberg U.S. Dollar Bullish (USDU) rose 2.3%.

Bond Funds

Along with gold and silver commodities, investors found a haven in the bond market. Fixed-income ETFs are seeing the fastest year-to-date inflow on record. They absorbed $19.6 billion through Feb. 12, BlackRock reported.

According to the company, concerns relating to the far-left Syriza party's win in Greece as well as higher U.S. yields vs. other sovereign bond markets are driving the global flight to U.S. Treasuries.Vanguard Extended Duration Treasury (EDV) has advanced 2.4% year to date. Investors also sought out high-yield debt in their relentless hunt for income.

SPDR Barclays High Yield Bond (JNK) has risen 2.6% so far in 2015. Guggenheim BulletShares2017 High Yield Corporate Bond (BSJH) gained 1.9%.

Looking ahead, BlackRock analysts favor tech stocks as well as integrated oil companies. They note the latter will benefit from slightly better economic prospects abroad.

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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