Settling the Europe Large-Cap ETF Debate
November 28th at 7:30am by Todd Shriber
In what is turning into a banner year for Europe exchange traded funds, there are several standouts, but the Vanguard FTSE Europe ETF (NYSEArca: VGK) seems to occupy the hearts and minds of scores of advisors and investors.
VGK is up 20% year-to-date and has hauled in $6.25 billion in new investments, making it the fourth-best ETF of any type by that metric. Vanguard only charges 0.12% per year to own VGK, making it cheaper than 93% of rival funds, according to issuer data. All those of are important and nice statistics, but none should imply VGK is the “best” diversified Europe in terms of returns.
In fact, some savvy advisors have embraced rivals to VGK and have done so with superior results. One of those alternatives is the $4.43 billion SPDR EURO STOXX 50 ETF (NYSEArca: FEZ).
“We got to FEZ in a few ways,” said Stephen Murray, portfolio manager at New Hampshire-based Harvest Capital Management, in an interview with ETF Trends. “We wanted to focus on the Eurozone, so VGK got knocked out because of its large U.K. weight.”
Murray’s point is a vital one when it comes to evaluating Europe ETFs. Funds such as VGK and the iShares Europe ETF (NYSEArca: IEV), also up 20% this year, are far from being explicit Eurozone plays. Those ETFs have been bolstered by large weights to the U.K. and Switzerland, two countries that combine for nearly half of VGK’s weight.
Another 7.8% of VGK is allocated to Nordic countries that are not Eurozone members, but with previously controversial Eurozone stocks recovering and still cheaper than their U.S. and U.K. peers, according to Murray, investors may not want to be skimping on the region’s equities. [Europe's P/E Ratios Can Keep Recovering]
“We’re starting to see some mean reversion between U.S., U.K. and Europe stocks, so FEZ is morphing into a play on global growth,” said Murray whose firm owns $11 million worth of the ETF. “If you’re believing Europe will turn around, FEZ is a play on that rebound and global growth. The trade still has legs.”