With all eyes on the European Central Bank this week, exchange trade fund investors can look forward to improved sentiment for both Eurozone equities and fixed-income markets if the central bank reveals a looser monetary policy Thursday.
“ECB action would improve sentiment in bond markets and strengthens the relative valuation case for Eurozone equities,” according to Boost ETP, which was recently acquired by WisdomTree’s (NasdaqGS: WETF).
Many are calling for the ECB to help fix the rising risk of disinflation, the strong euro currency and low access to affordable credit lines.
Specifically, Boost ETP argues that the ECB’s policy decision, which could include negative deposit rate, a third long-term refinancing operation program, and broader eligible collateral for banks, would bolster the Eurozone’s small- and mid-sized enterprises.
Additionally, after the ECB’s helping hand, investors will turn to riskier assets.
“The action by the ECB, because it is expected to be more wide ranging and more targeted, is likely to be a big sentiment boost for financial markets in the Eurozone as a whole,” Boost ETP said. “Risk assets, in particular Eurozone banks stocks could stand to benefit the most.”
The SPDR EURO STOXX 50 Fund (NYSEArca: FEZ), which excludes the U.K. and Switzerland in favor of a heavy tilt toward Eurozone countries, includes a 25.7% tilt toward financial stocks. [Europe ETFs for Possible ECB Quantitative Easing]
The WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ) tracks Eurozone markets and hedges against a depreciating euro currency. HEDJ, though, includes a smaller 17.5% weight toward financials. [An ETF to Capture Eurozone Growth, Sans Currency Risk]