Investors are revisiting Europe exchange traded funds in significant fashion this year with many looking for value plays as the U.S. equity market looks increasingly expensive. There are plenty of positives when it comes to European equity markets, including improving economic growth and some attractive valuations.
Those could be the catalysts luring professional investors to ETFs such as 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.
The Eurozone macroeconomic environment has steadily improved, with a significant uptick in manufacturing and services PMIs over the end of 2016. Eurozone growth may continue to pick up speed ahead after the European Central Bank revealed increased loan demand and easing of terms and conditions on new loans to help stimulate the economy.
Last week at the SkyBridge Alternatives (SALT) hedge fund conference in Las Vegas, “speaker after speaker touted European equities for their attractive valuations and as a means to diversify away from the volatile American market in light of rising U.S. geopolitical risk. France’s election of centrist Emmanuel Macron over far-right nationalist Marine Le Pen this month has especially eased investors’ fears that antiestablishment forces would challenge the integrity of the European Union (EU),” reports ETF Daily News.
Eurozone stocks and the related exchange traded funds have been impressive performers this year. For example, the iShares MSCI EMU ETF (NYSEArca: EZU) and SPDR EURO STOXX 50 (NYSEArca: FEZ) topped the S&P 500 in the first quarter.
While the France election is wrapped up, investors still must consider other sources of European political risk, including the June Brexit poll in the U.K. as well as national elections later this year in Germany and Italy. Germany and Italy are the Eurozone’s largest and third-largest economies, respectively.
“Trading at around 17 times earnings, European companies are priced to move compared to American firms, which are trading at 22 times earnings,” according to ETF Daily News. “Dividend yields also look attractive relative to U.S. stocks. The MSCI Emerging Europe Index, which is most heavily weighted in Russian, Polish and Turkish stocks, currently yields 3.2 percent. The S&P 500 Index, by comparison, yields 2 percent.”
For more information on the European markets, visit our Europe category.