July was not a good month for U.S. or European equities and the related exchange traded funds. The S&P 500 fell 2.2% while the U.K.’s FTSE 100 lost 1.1%. Germany’s DAX plunged 5% on the month even as the CurrencyShares Euro Trust (NYSEArca: FXE) dipped 2.1%, indicating some investors are concerned about European stocks even as the euro slides.
Those concerns manifested into the first month of outflows from U.S.-listed exchange traded funds tracking European shares in over a year.
“Strategists point to items such as U.S. exchange-traded funds, which pulled $1.1 billion from European assets this month, the first outflow since April 2013,” report Rachel Evans and Andrea Wong for Bloomberg.
The Vanguard FTSE Europe ETF (NYSEArca: VGK), one of the most prolific asset gatherers among all ETFs this year, bled almost $472 million last month. However, not all Europe ETFs are seeing outflows and some still offer plenty of opportunity for investors. [Where First Half ETF Cash Flowed]
The db X-Trackers MSCI Europe Hedged Equity Fund (NYSEArca: DBEU) added $17.6 million, which may not sound like much, but remember July was clearly a trying time for Europe ETFs. Plus, $17.6 million of inflows sure looks a lot better than the nearly $472 million lost by VGK.
Not to mention that $17.6 million is nearly 9% of DBEU’s current assets under management tally. That is to say it has taken DBEU just 10 months of trading to reach $202.6 million in AUM. [Beat Euro Risk With This ETF]
“In our view, the effects of a proactive and accommodative European Central Bank will likely serve as a catalyst for an improvement in corporate earnings, an increase in capital expenditures and stronger equity markets in the second half of 2014. A stronger U.S. dollar vs. currencies in Europe will help European exports but may lead to headwinds for unhedged investments,” said Deutsche Asset & Wealth Management Managing Director Dodd Kittsley in an interview with Investor’s Business Daily.
DBEU is a currency hedged ETF, but as Kittsley noted to IBD, the ETF is a diversified play on Europe as it holds nearly 440 stocks across 16 countries.
That means the ETF is not explicit Eurozone play. Not with the U.K. and Switzerlan combining for 42.5% of the fund’s weight. However, France, Germany, the Netherlands, Spain and Italy combine for almost 45% of DBEU’s weight, giving the fund significant exposure to a weaker euro and perhaps enough to ward off the effects of a stronger British pound. [Falling Euro Pushes Dollars Into These ETFs]
The hedge euro exposure is a benefit at a time when traders are building bearish bets against the common currency. “The difference in the number of wagers on a decline in the euro compared with those on a rally — net shorts — totaled 88,823 contracts on July 22, the most since November 2012,” Bloomberg reported, citing Commodities Futures Trading Commission data.
DBEU also devotes 4.5% of its weight to Sweden, a country that recently lowered interest rates. In July, the CurrencyShares Swedish Krona Trust (NYSEArca: FXS) fell almost 3%.
db X-Trackers MSCI Europe Hedged Equity Fund
