As the Eurozone languishes under a stagnating growth outlook, investors seem fed up with European markets, funneling record outflows from the region-focused stock exchange traded funds.
According to Markit data, U.S.-listed Europe stock ETFs have experienced almost $3 billion in asset outflows so far this month, compared to a record $2.2 billion pulled over August, the largest monthly outflow since the products were launched, reports Ralph Atkins for Financial Times.
For example, the Vanguard FTSE Europe ETF (NYSEArca: VGK), the largest U.S.-listed Europe ETF, experienced $2.1 billion in outflows so far this month, according to ETF.com data. Meanwhile, the iShares MSCI EMU ETF (NYSEArca: EZU), which tracks European Monetary Union states, saw $369.8 million in outflows.
Market observers argue that the outflows were fueled by a depreciating euro, which made euro-denominated returns less attractive when converted back into U.S. dollar terms, along with fears of deflationary troubles.
“The growth story isn’t really there,” Simon Colvin, analyst at Markit, said in the article.
However, some investors are bottom fishing with Europe hedged-equity ETFs, which hedge against a depreciating euro currency. For instance, the Deutsche X-Trackers MSCI Europe Hedged Equity ETF (NYSEArca: DBEU) added $119.3 million so far this month while the WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ) saw $227 million in new inflows.
These hedged equity ETFs could outperform a non-hedged ETF as the foreign currency depreciates against the U.S. dollar. Over the past month, DBEU is 6.4% lower and HEDJ is down 7.1%. In contrast, VGK declined 8.2% and EZU decreased 9.2% over the past month. Meanwhile, the euro currency has depreciated 1.7% against the USD.
Europe ETF asset outflows quickened from October 10 after global markets declined, and outflows continued due to the heightened volatility. Many investors remain wary over the Eurozone’s growth outlook.
Earlier in October, the International Monetary Fund warned that there is a 40% the Eurozone could fall into another recession. Nevertheless, the purchasing managers’ indices data indicated that economic activity over October has been better-than-expected.
For more information on ETFs, visit our ETF performance reports category.
Max Chen contributed to this article.