ETFs to Access Stronger Overseas Developed Markets | ETF Trends

Developed international stocks and exchange traded funds are pulling ahead with the Eurozone strengthening on improved earnings and Japan finding support from domestic institutional investors.

In Europe, with the Greek debt woes dissipating, investors have been focused on the improved earnings season, according to Russ Koesterich, managing director and BlackRock‘s global chief investment strategist.

About 55% of European companies have beat estimates, with average year-over-year earnings-per-share growth of 15%. Additionally, banks and consumer discretionary companies have stood out, with 75% exceeding expectations.

Year-to-date, the iShares MSCI EMU ETF (NYSEArca: EZU) gained 7.9% and the SPDR EURO STOXX 50 (NYSEArca: FEZ) rose 6.5%. [Target Developed Europe ETFs If You Want Overseas Exposure]

Investors can also target European financials through the iShares MSCI Europe Financials ETF (NYSEArca: EUFN), which is up 9.8% year-to-date.

Koesterich, though, warned that market expectations for higher Federal Reserve interest rates have pushed up the U.S. dollar. Consequently, investors will exposed to currency risks when adding overseas assets.

Nevertheless, euro-currency hedged ETFs can help diminish the negative effects of a stronger dollar or weaker euro currency. Euro-hedged ETF options include 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).

In Japan, stocks have been holding up under recent selling pressure, even with an appreciating yen currency. The Japanese equities market is being supported by Japan pension funds’ rotation into domestic equities – the three largest public sector pension plans have increased equity allocations by over 5% since last spring but still remain below the 25% target. Consequently, Koesterich argues that further institutional buying will follow this year.