ETFs Stunted While Europe Battles the Inflation Beast | ETF Trends

Two key banks in Europe left their interest rates untouched as they wait to see if slower growth will ultimately give life to the economy and exchange traded funds (ETFs).

Borrowing costs were left at 4.25% by the European Central Bank, while the Bank of England held its benchmark rate at 5%, reports Carter Dougherty for the New York Times. The ECB said it would have inflation under control by 2010, something many Europeans could be looking forward to.

The ECB expects euro zone growth to hit 1.4% this year, and 1.2% for 2009. Inflation is forecast to be 3.5% for this year and 2.6% for next year. Financial market turmoil is bubbling over into Europe, with housing market downturns, soaring commodity and energy prices affecting daily lives, and weak economic activity in many places.

When a recovery shows up, the Dow Jones Euro Stoxx (FEZ) fund might be a way to capitalize. The ETF is made up of an index that tracks 50 Eurozone companies, of which are market leaders within their sectors. To clarify, the Eurozone includes most countries in Western Europe except the United Kingdom. Some of the largest companies in Europe are included in this ETF.

While Germany and France make up around 64% of the portfolio, 32% of the entire fund is in the financials sector. The expense ratio is at 32% which is fair for the immense exposure. The assets are only at $279 million, reports David Hunkar for Seeking Alpha.

Europe and the Eurozone countries are feeling the side effects of the credit crisis, with a slower-than-expected growth outlook for the entire economy, according to the Organization for Economic Development.

Other diversified ways to get European exposure when the time is right:

  • iShares MSCI EMU Index (EZU): down 24% year-to-date; France, 28.5%; Germany, 25.8%; Spain, 11.9%; Italy, 10.7%
  • Vanguard European Stock (VGK): down 19.6% year-to-date; United Kingdom, 30.8%; France, 14.3%; Germany, 12.9%; Switzerland, 10.2%; Spain, 5.9%
  • PowerShares FTSE RAFI Europe Portfolio (PEF): down 21.7% year-to-date; United Kingdom, 32.2%; France, 16.4%; Germany, 14.4%; Switzerland, 7.4%

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.