Fundamentals Looking Up For European ETFs
August 23rd at 4:11pm by Tom Lydon
An improving macroeconomic picture has been a catalyst for European stocks to recover and begin a growth cycle. Broad-based exchange traded funds that track the region are one of the better ways to gain exposure, according to S&P Capital IQ.
In a recent outlook, Alec Young, S&P Capital IQ global equity strategist, wrote that, “Although the region’s growth is finally showing signs of life, the European Central Bank’s pledge to maintain aggressive monetary policy accommodation for the foreseeable future has enabled investors to embrace a bullish stance despite mounting liquidity tapering worries elsewhere.”
Europe is positioned for EPS growth at 12.8%, beating out developed markets such as the U.S. and Japan. The average dividend yield coming from European stocks is around 3%, again higher than comparable countries. [iShares: Don't Lose Sight of International ETFs]
The Vanguard FTSE Europe ETF (NYSEArca: VGK) is the largest broad-based ETF trading with $7.7 billion in assets under management. A dividend yield of 5.1% is healthy, with sectors such as financials, consumer staples and industrials given the highest weighting. The 0.12% expense ratio is another plus. The ETF is up 8% over the past month. [Forbes Flags Best ETFs]
The iShares MSCI EMU ETF (NYSEArca: EZU) is the second largest Europe-focused ETF trading. The fund touts $3.2 billion in assets and a dividend yield of 2.6%. Top sectors include consumer discretionary, industrials and financials. The 0.53% expense ratio makes this ETF the most expensive Europe-focused ETFs of the three. EZU is up 10.3% over one month. [ETFs for an Improving Europe]
Another option, the SPDR Euro STOXX 50 ETF (NYSEArca: FEZ) has $2.8 billion in assets and has the highest exposures to the healthcare, financial and industrial sectors. A 3.29% dividend yield is featured with a 0.29% expense ratio. FEZ is up 3.7% over the past month. [International ETFs: Diversification and Overcoming 'Home Bias']
The fact that the European Union statistical office has reported a growth trend after 18 months of recession is good news for investors. The EU reported a 0.3% GDP growth which was led by the economies of Germany and France. However, the countries of Italy, Spain and the Netherlands are still in a recession, posting a negative growth rate. Despite this, the longest recession in the European Union’s 14-year life is finally coming to an end.
“The perception regarding the continent is starting the change, the euro currency is looking more firm, and growth rates are actually starting to pick up as well,” Eric Dutram wrote for Zacks.
Vanguard FTSE Europe ETF
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.