With Greece paying back creditors and volatility dissipating, investors may want to revisit the international investment theme through Eurozone-related exchange traded funds.
Goldman Sachs (NYSE: GS) has now upgraded its three-month view on European equities to “overweight” and downgraded U.S. stocks to “underweight,” arguing that stocks at home typically underperformed in the 12 months after a Federal Reserve’s first rate hike, reports Ansuya Harjani for CNBC.
“European equities have been one of the key asset classes to benefit from a fading of Greek risks following their drawdown,” Goldman Sachs said in a note. “While performance potential might be limited in the near-term after the strong rebound, several supportive fundamental factors should help outperformance of European vs. U.S. equities until year-end.”
The investment bank believes factors like the weak euro, easing monetary policy and rebound in economic growth will bolster European markets.
Consequently, ETF investors interested in capturing Eurozone growth but are also concerned about the euro can look to currency-hedged ETFs. Over the past month, the euro-currency hedged Deutsche X-trackers MSCI EMU Hedged Equity ETF (NYSEArca: DBEZ) gained 6.5%, iShares Currency Hedged MSCI EMU ETF (NYSEArca: HEZU) rose 6.7% and WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ) increased 6.1%. [After a Pause, Investors Return to Euro Hedged ETFs]
Moreover, Goldman Sachs is overweight Italy, Spain and Germany. Investors can also gain exposure to the three markets through currency-hedged country-specific ETFs, including the recently launched iShares Currency Hedged MSCI Italy ETF (NYSEArca: HEWI) and iShares Currency Hedged MSCI Spain ETF (NYSEArca: HEWP). Additionally, there are a number of currency-hedged Germany choices, including the iShares Currency Hedged MSCI Germany ETF (NYSEArca: HEWG), Deutsche X-trackers MSCI Germany Hedged Equity Fund (NYSEArca: DBGR) and WisdomTree Germany Hedged Equity Fund (NasdaqGM: DXGE). [iShares Unveils Massive Expansion to Currency Hedged Suite]
Bank of America Merrill Lynch’s July Fund Manager Survey also revealed increased appetite to overweight European markets, with 40% of participants overweighting the Eurozone and more intended to raise the regional exposure on a 12-month outlook.
“Despite the Greek news flow, intention to own European assets is high and rising, though global growth remains vitally important for European stocks,” Manish Kabra, European equity strategist at BofA Merrill Lynch Fund Manager Survey, said.
In contrast, Goldman Sachs expects the S&P 500 to return a negative 0.7% over the next three months and a negative 0.2% over the next six-months.
“We are underweight U.S. equities, as return potential is constrained by high valuations and margins,” the bank said. “Historically, non-U.S. equity markets have outperformed U.S. equities in the 12 months after the first Fed rate hike.”
For those who are wary of a potential pullback in the S&P 500 index, there are a number of bearish or inverse ETF options with varying levels of leveraged exposure to capitalize off a weakening S&P 500. The ProShares Short S&P500 (NYSEArca: SH) takes a simple inverse or -100% daily performance of the S&P 500 index. Alternatively, for the more aggressive trader, leveraged options include the ProShares UltraShort S&P500 ETF (NYSEArca: SDS), which tries to reflect the -2x or -200% daily performance of the S&P 500, the Direxion Daily S&P 500 Bear 3x Shares (NYSEArca: SPXS), which takes the -3x or -300% daily performance of the S&P 500, and ProShares UltraPro Short S&P 500 ETF (NYSEArca: SPXU), which also takes the -300% daily performance of the S&P 500. [Correction Prep With These Inverse ETFs]
For more information on the European market, visit our Europe category.
Max Chen contributed to this article.