European stocks and region-specific exchange traded funds were among the best international markets as the European Central Bank’s loose monetary policies added to the early year rally.
Eurozone equities were leading during the first half of the year as the ECB enacted an aggressive bond purchasing program and cut rates. However, the markets soured on global growth concerns and a commodity rout in August.
Nevertheless, euro-currency hedged ETFs, which diminish the negative effects of a stronger dollar or weaker euro currency, still generated decent returns this year as the falling euro helped push the hedged version slightly ahead of non-hedged Europe funds. Year-to-date, the Deutsche X-trackers MSCI EMU Hedged Equity ETF (NYSEArca: DBEZ) was up 11.7%, iShares Currency Hedged MSCI EMU ETF (NYSEArca: HEZU) rose 9.9% and WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ) gained 8.1%.
Meanwhile, the CurrencyShares Euro Currency Trust (NYSEArca: FXE) dipped 10.1% this year, with the euro trading at about $1.0932.
In contrast, the non-hedged iShares MSCI EMU ETF (NYSEArca: EZU) added 1.1% and the SPDR EURO STOXX 50 (NYSEArca: FEZ) fell 1.6% this year. The two non-hedged ETFs both focus on Eurozone countries. [Bargain Hunters Eye Europe ETFs]
The Stoxx Europe 600, a benchmark of major companies across Europe, was up 7.3% for the year ended Wednesday, whereas the S&P 500 only rose a little less than 1%.
As the ECB continues its loose monetary policy, with some expecting additional measures to bolster the economy, many observers argue that European markets could continue to outperform in 2016, the Wall Street Journal reports.
“We still feel Europe is the place to be,” Luca Paolini, chief strategist at Pictet Asset Management, told the WSJ.
The ECB has been buying bonds to lower debt yields across the Eurozone, forcing investors to turn to riskier assets, like stocks, to generate decent returns. Additionally, the ECB’s actions has also depreciated the euro currency, which has benefited the regions’ exporters. [Europe ETFs Bounce on Improved Outlook for Exporters]
Scott Meech, co-head of European Equities at Union Bancaire Privée, anticipates that these drivers of growth across the Eurozone will remain in place even if the global economy slows.
“It’s hard not to envisage more of the same,” Meech told the WSJ. “The modest recovery in Europe looks set to continue.”
Nevertheless, investors should be mindful of potential risks. For instance, some observers still have lingering concerns over Greece’s financial solvency. Additionally, Andreas Koester, head of asset allocation and currency at UBS Global Asset Management, pointed to political risk from Spain’s election and the prospect of a U.K. referendum on European Union membership.
WisdomTree Europe Hedged Equity Fund
For more information on the European markets, visit our Europe category.
Max Chen contributed to this article.