The Eurozone’s sovereign debt crisis is still fresh on investors’ minds , but 2013 has been kind to Europe exchange traded funds.
That applies to single-country and diversified ETFs and the outlook for 2014 is rosy, too. Although risks remain in the Eurozone, Goldman Sachs forecast a 12% rise next year for the Stoxx Europe 600 Index. [Goldman Forecast Bullish for Europe, Japan ETFs]
Although European equities, broadly speaking, have performed well this year, there is still room for recovery when it comes to Eurozone P/E ratios. For example, stocks in Italy and Spain, the region’s third- and fourth-largest economies, respectively, are cheaper today than they were in 2004. [Europe’s P/E Ratios Can Keep Recovering]
With that in mind, we evaluate 10 of this year’s best diversified Europe ETFs. A few notes about this list. First, sector funds were excluded. For example, the iShares MSCI Europe Financials ETF (NasdaqGS: EUFN), which it must be noted has performed well this year, is not on the list. [A Sector Approach to Europe ETFs]
However, region-specific, multi-country funds were included. Additionally, some of the ETFs on this list offer truly broad Europe exposure while others are multi-country ETFs that focus explicitly on Eurozone nations. All return data is courtesy XTF as of Nov. 25.
Let’s get started with the…
First Trust Dow Jones STOXX Select Dividend 30 Index Fund (NYSEArca: FDD)
YTD: 12.4%
Comment: FDD slices the STOXX Europe 600 Index into a group of 31 components weighed by dividend yield, resulting in a 12-month trailing yield of 3.53% and a30-day SEC yield of 5.13%. Components are capped at a weight of 15%, though none of the ETF’s holdings currently account for more than 5.7% of the fund’s weight. The U.K., France and Germany combine for almost 60% of FDD’s geographic exposure.
SPDR STOXX Europe 50 Fund (NYSEArca: FEU)
YTD: 17.2%
Comment: FEU, which holds 57 not 50 stocks, competes in a crowded space of diversified Europe ETFs that are NOT explicit Eurozone plays. Rather, 60% of FEU’s weight goes to the U.K. and Switzerland. A P/E ratio of 13.76 indicates a discount to U.S. equities. Although FEU has average daily volume of less than 45,000 shares, most of its holdings are heavily traded large-caps and the fund rarely trades at large premiums or discounts to its net asset value.
PowerShares BLDRS Europe 100 ADR Index Fund (NasdaqGS: ADRU)
YTD: 18%
Comment: Like FEU, ADRU is heavily tilted toward the U.K. and Switzerland. However, this fund does offer utility for the conservative investor searching for Europe exposure. The average market value of ADRU’s 85 holdings is almost $96 billion and all of the ETF’s trade in the U.S.. That group includes BP (NYSE: BP), GlaxoSmithKline (NYSE: GSK) and Royal Dutch Shell (NYSE: RDS-A). Health care and staples combine for over 30% of ADRU’s weight.
WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ)
YTD: 18.2%
Comment: If not for some other hedged currency ETFs grabbing the limelight this year, HEDJ would be grabbing more attention as one this year’s more compelling ETF growth stories. HEDJ, which hedges euro currency exposure, has accumulated $442.6 million of its $519.6 million in assets this year. [10 ETFs That More Than Doubled in Size]
Vanguard FTSE Europe ETF (NYSEArca: VGK)
YTD: 19.8%
Comment: VGK is tied with its direct competitor, the iShares Europe ETF (NYSEArca: IEV), when it comes to 2013 returns, but VGK is the winner in terms of sheer popularity. The 0.12% annual expense, cheap by the standards of most global ETFs, makes VGK cheaper than 93% of its rivals. Fees and performance justify the fund’s place in the conversation regarding the better diversified Europe ETFs. [Big Europe ETF, Rivals Shine]
SPDR EURO STOXX 50 Fund (NYSEArca: FEZ)
YTD: 21.5%
Comment: FEZ goes in a different direction than ETFs like IEV and VGK, meaning FEZ focuses on the Eurozone. The U.K. and Switzerland are nowhere to be found in this ETF and the returns say that is more than alright. France and Germany dominate FEZ to the tune of almost 70%, proving investors are not taking on significant PIIGS risk with this fund.
iShares MSCI EMU ETF (NYSEArca: EZU)
YTD: 22.2%
Comment: EZU is something of a competitor to FEZ, but there are some differences. For example, EZU’s combined France/Germany exposure is lower, but the iShares fund features a higher weight to the Netherlands. This year, that has worked in EZU’s favor as Dutch stocks, quiet as it has been kept, have been impressive. [Buyers Go Dutch With This ETF]
Global X FTSE Nordic Region ETF (NYSEArca: GXF)
YTD: 22.6%
Comment: GXF is the play for the investor that knows he wants Nordic exposure, but just cannot decide which country to allocate to. All four of GXF’s country exposures have AAA credit ratings. Sweden dominates the fund at almost 54% with Denmark, Norway and Finland making up the rest.
First Trust Europe AlphaDEX Fund (NYSEArca: FEP)
YTD: 24.2%
Comment: FEP is the smart beta member of this list as the ETF’s 202 holdings are selected based “on growth factors including 3-, 6- and 12-month price appreciation, sales to price and one year sales growth, and separately on value factors including book value to price, cash flow to price and return on assets,” according to First Trust.
Although FEP does not get a lot of press, the ETF is not small with $317.1 million in assets s under management. More importantly, FEP is truly diversified as it offers decent exposure to the U.K., Switzerland, Nordic countries and the Eurozone.
WisdomTree Europe SmallCap Dividend Fund (NYSEArca: DFE)
YTD: 35.4%
Comment: Up more than 35% this year, DFE shows European small-caps have surged in similar fashion to their U.S. counterparts. DFE also fits the bill as a play on improving margins and a cyclical recovery in Europe because industrials and consumer discretionary, two cyclical sectors, combine for almost 42% of the ETF’s weight. Roughly 57% of DFE’s weight goes to non-Eurozone nations. The ETF has a 30-day SEC yield of 2.66%.