Europe continues to command attention within the investment community as an ideal destination for ex-US developed markets exposure this year, prompting many investors to revisit the related exchange traded funds such as the iShares MSCI EMU ETF (NYSEArca: EZU) and SPDR EURO STOXX 50 (NYSEArca: FEZ).
Improving economic conditions and strengthening company earnings in Europe are signals that diversified exchange traded fund investors should keep in mind when looking for areas of potential growth after a multi-year run in U.S. markets leaves less opportunities at home.
“The post-election rally in U.S. equities is looking tired as gridlock has sapped momentum in Washington. Investors have been looking for a better place to grow cash, and the European market is quickly becoming the favorite target,” according to CNBC.
The Vanguard FTSE Europe ETF (NYSEArca: VGK) is the largest dedicated Europe ETF trading in the U.S. Investors should note VGK is not a dedicated Eurozone ETF as highlighted by its hefty weights to the U.K., Switzerland and some Nordic countries.
In a post-Brexit environment, many immediately wrote-off European exposure in a knee-jerk reaction to the ongoing uncertainties. However, investors may miss out on cheap valuations in Europe-related exchange traded funds as a long-term investment opportunity.
The European Central Bank has been implementing a loose monetary policy that dragged yields down to record lows. Consequently, dividend-paying European stocks and related exchange traded funds (ETFs) may strengthen as more investors turn to riskier assets.
Earlier this year, Vanguard unveiled another round of fee cuts and VGK was part of that group. The Europe ETF now charges 0.1% per year, or $10 on a $10,000 investment, down from 0.12% per year.
“We believe that the underlying performance of European equities is potentially misunderstood by market participants,” Henry McVey, head of global macro and asset allocation for private equity powerhouse KKR, said in a lengthy report for clients, reports CNBC. “We also believe that European equities, financials in particular, are poised to perform well in 2017.”
Additionally, market analysts have upwardly revised their projections on Eurozone markets as a weakening euro currency, stronger global demand and steepening yield curve help support revenue growth, potentially signaling a turn in the prolonged earnings recession.
Potential investors, though, should keep an eye on further political risks, such as the U.S. anti-trade policies, Brexit negotiations and elections in Netherlands, France, Germany and Italy
For more information on the European markets, visit our Europe category.