While investors were busy pulling money out of emerging markets exchange traded funds last year, they plunked hundreds of billions into developed market funds. Those allocations were not limited to U.S. and Japanese stock funds, the shining stars of developed world equity markets last year.
Attractive valuations and signs the continent is emerging from one of the worst sovereign debt crises on record lure investors to Europe ETFs, both diversified and single-country funds, as well. There is no shortage of Europe ETFs trading on U.S. exchanges, but last year, investors displayed a preference for more familiar fare at both the multi- and single-country levels with funds with heavy allocations to the U.K., Switzerland and Germany commanding most of the attention – and cash. [Attractive Valuations Found Among Europe ETFs]
It is easy for an unheralded ETF such as the First Trust Europe AlphaDEX Fund (NYSEArca: FEP) to get lost in the shuffle, but fund’s place among the more obscure Europe ETF offerings may not be justified. Importantly, inflows data indicate investors are starting to wake up to FEP’s story.
FEP is not small, at least not anymore. The fund now has $436.5 million in assets under management, $341.1 million of which came into the ETF last year. Investors have not let up. FEP has attracted almost $33 million since the start of 2014.
FEP is a smart beta fund 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. [10 Great Diversified Europe ETFs]
FEP also gives investors a lot of what they are looking for with diversified Europe ETFs. That is a more conservative posture without being completely excluded from equity market recoveries in more controversial countries such as the PIIGS. Almost 48% of FEP’s weight is allocated to France, the U.K. and Germany.
Throw in a 15.1% combined weight to three Nordic countries and it is clear FEP errs on the side of caution. However, FEP is not a “boring” Europe ETF because it does offer some leverage to the low valuations and possible bounces in PIIGS markets Italy, Spain and Greece. Those countries combine 18% of the fund’s weight.
FEP is up 27.4% in the past year, a performance that compares favorably with some of its larger rivals and the ETF could build on that momentum in 2014 due to its attractive sector mix.
Financial services, one of the sectors analysts tracking European stocks are most bullish on, lead FEP with a weight of 22%. Additionally, FEP is intimately levered to a recovery in Europe’s domestic and export economies with a combined 35% weight to consumer discretionary and industrial names. Although FEP is not a currency hedged ETF, its weights to those two sectors indicate the fund could benefit from some retrenchment in the euro, a currency some strategists view as overvalued. [Time to Make a Deposit With European Banks]
First Trust Europe AlphaDEX Fund
ETF Trends editorial team contributed to this post.