One of the most compelling stories in the exchange traded funds space in 2017 is investors’ affinity for ex-US developed markets funds. That includes Europe ETFs as well.
Meanwhile, macroeconomic data has performed well and could continue to support a sustained economic expansion as PMIs and economic sentiment indicators held up well in the face of a stronger euro currency – the EUR has appreciated against the greenback year-to-date. Some, though, are growing concerned a a strengthening euro is eating into Eurozone’s company earnings.
ETF investors who are still interested in the Europe story have a number of options available, such as the iShares Core MSCI Europe ETF (NYSEArca: IEUR), which is seen as a cheaper “core” alternative to older iShares Europe ETF (NYSEArca: IEV), along with the iShares MSCI EMU ETF (Cboe: EZU), which is comprised of of euro member states.
However, European equities are unusually quiet heading into 2018.
“While the Euro Stoxx 50 Index is heading for a record sixth year of gains, the volume of shares traded has fallen 27 percent, compared with an 11 percent drop for the MSCI All-Country World Index,” reports Bloomberg. “With investors increasingly turning to passive funds, fewer than 480 million shares on the European measure changed hands on average daily in 2017, the least since 2001. The drop was less stark for Germany’s DAX Index — volume fell only 8.9 percent — and strategists forecast the gauge will reach a fresh record next year.”
In the fourth quarter, EZU has added $1.44 billion in new assets while IEV and IEUR have bled about $588 million combined.
Investors who believe the euro currency could weaken after its recent rally and are bullish on the Eurozone’s outlook can turn to currency-hedged ETF options, such as the 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). These currency-hedged Europe ETFs may outperform non-hedged Europe funds if the euro depreciates against the U.S. dollar.
The anti-euro government sentiment and flareups of nationalism have died down as no major party is pushing to exit the Eurozone. French President Emmanuel Macron is expected to enact a pro-growth agenda with the help of a majority backing in parliament, with labor reforms already off to a good start.
For more information on European markets, visit our Europe category.