After a stand out year, U.S. equities could begin to slow. Consequently, investors could turn to overseas European markets and related exchange traded funds for better returns.
Peter Oppenheimer, the chief global equities strategist at Goldman Sachs, argues that U.S. gains are coming at a slower rate than European counterparts, reports Matt Clinch for CNBC.
“(European) economic activity has been weak, there were a lot of concerns last year…but as (quantitative easing) started to come through, those fears are fading a little bit and that’s what’s buoying the European market,” Oppenheimer said on CNBC.
For instance, the SPDR S&P 500 ETF (NYSEArca: SPY) gained 2.2% year-to-date, whereas the iShares MSCI EMU ETF (NYSEArca: EZU) and SPDR EURO STOXX 50 (NYSEArca: FEZ), which both focus on Eurozone markets, rose 5.5% and 4.7%, respectively.
Additionally, Oppenheimer warned that the euro could fall to parity with the U.S. dollar, or even further, which would help stimulate the Eurozone economy and bolster earnings for the region’s exporters.
The CurrencyShares Euro Currency Trust (NYSEArca: FXE) has declined 5.7% year-to-date. The euro currency is now trading at about $1.1396, compared to about $1.2 at the start of the year.
Consequently, investors who believe the euro currency will continue to depreciate against the U.S. dollar could consider currency-hedged ETFs to mitigate the any foreign exchange risks. For instance, the Deutsche X-trackers MSCI EMU Hedged Equity ETF (NYSEArca: DBEZ), iShares Currency Hedged MSCI EMU ETF (NYSEArca: HEZU) and WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ) track Eurozone equities and hedge against a weakening euro currency. EZU and FEZ, on the other hand, do not hedge currency risks, so they might underperform a currency-hedged ETF if the euro continues to weaken. [Europe ETFs to Invest Like a Millionaire]
The popular Eurozone play has helped HEDJ accumulate $10 billion in assets under management as investors funneled billions into the hedged equity strategy over the past year. [Euro Hedged ETF Tops $10B in Assets]
Moreover, ETFs that track Germany, the largest Eurozone member, are also on a tear as the benchmark DAX marched toward its 11,000 mark. With its heavy tilt toward large, multi-national companies, the DAX index is benefiting from a depreciating euro currency. [Investors Rush to Germany ETFs]
For more information on Europe, visit our Europe category.
Max Chen contributed to this article.
Full Disclosure: Tom Lydon’s clients own shares of SPY and HEDJ.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.