European equities and the relevant US-listed exchange traded funds have been receiving increased attention this year as investors look for developed markets investment ideas that lie outside the U.S. That includes the iShares MSCI EMU ETF (NYSEArca: EZU) and SPDR EURO STOXX 50 (NYSEArca: FEZ).
The Eurozone ETFs are also attractively priced relative to U.S. markets, especially after a multi-year bull run has pushed U.S. equities to record highs, with many areas either fairly priced or trading above their historical values. For instance, EZU is trading at a 14.6 price-to-earnings and a 1.5 price-to-book and FEZ shows a 14.2 P/E and a 1.5 P/B, whereas the S&P 500 Index is hovering around a 18.7 P/E and a 2.7 P/B.
However, investors would do well to remember the Vanguard FTSE Europe ETF (NYSEArca: VGK). 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.
“Per a BofA-Merrill Lynch survey, 23% of fund managers think European equities are undervalued, while 81% think U.S. stocks are too expensive. I went back and looked at the last time global managers thought the U.S. was this overvalued: it was in 2004, when the S&P 500 Index (SPX) rallied 9%. Against this backdrop, I decided to take a look at the Vanguard FTSE Europe ETF (VGK), which tracks major European markets and has been interesting on the charts,” according to Schaeffer’s Investment Research.