U.S. equities and the related exchange traded funds disappointed in 2018, but the outcomes were far worse for Europe ETFs. In fact, some of Europe’s broad equity benchmarks posted their worst performances in a decade in 2018.
Vanguard FTSE Europe ETF (NYSEArca: VGK) and the iShares MSCI EMU ETF (CBOE: EZU), two of the largest US-listed ETFs, finished 2018 with losses of about 18% and 19%, respectively. The European benchmarks were set for their worst year since the 2008 financial downturn as a combination of political risk and economic concerns triggered about $70 billion in outflows from the region’s stock funds.
“U.K.’s FTSE index is down more than 12 percent since the start of the year and has suffered its biggest one-year fall since the financial crisis in 2008 as investors digest uncertainty surrounding the country’s exit from the European Union,” reports CNBC. “The pan-European Stoxx 600 has ended the year down 13 percent – its worst since the financial crisis. The DAX, has followed a similar trajectory, down more than 18 percent since the start of the year.”
What’s Next For Europe ETFs
Europe has been among the least loved areas of the global markets. According to Bank of America Merrill Lynch, Europe equities experienced 25 straight weeks of fund outflows and was the only region recording meaningful outflows this year through the middle of the third quarter.
“Market focus is largely attuned to the progress on the U.S.-China trade standoff after hints emerged when President Donald Trump said he had a ‘very good call’ with Chinese President Xi Jinping on Saturday to discuss trade,” according to CNBC. “He also claimed that ‘big progress’ was being made on this front. His statements have brought optimism to stocks worldwide that have been under pressure this year.”
VGK “holds stocks of companies located in Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom,” according to Vanguard.
Some investors are growing increasingly wary of European banks as ETFs tracking financials saw net outflows in Europe and the U.S. Goldman sachs research found mutual funds were on average holding fewer bank shares than benchmark indices and even raised short positions on the sector year-over-year. However, some market observers believe opportunities remain with European stocks.
For more information on the European markets, visit our Europe category.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.