European stocks and the related exchange traded funds have not been immune from this year’s downside in global markets. Just look at the Vanguard FTSE Europe ETF (NYSEArca: VGK).
VGK, one of the largest Europe-focused ETFs trading in the U.S., is off nearly 18% year-to-date and is experiencing massive outflows this year. This year, European stocks have been hindered by geopolitical risk and trade fears.
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.
“The Vanguard FTSE Europe ETF has given up $2.16 billion in outflows this year, the second-worst year of redemptions since the fund’s launch in 2005,” reports Bloomberg. “Only 2016 saw a faster exit by investors, according to data compiled by Bloomberg.”
What’s Next
VGK, which had $14.2 billion in assets under management as of Nov. 30, 2018, follows the FTSE Developed Europe All Cap Index. The fund holds nearly 1,350 stocks.
The ETF “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.
“Investors have fled European stocks to escape political uncertainty surrounding Italy and Brexit and as disappointing earnings captured just a fraction of the boom in U.S. profits,” according to Bloomberg.
The U.K. is VGK’s largest geographic allocation at 28.4% of the fund’s weight. France and Germany, the Eurozone’s two largest economies, combine for 29.4% of VGK’s weight.
“A survey of major fund managers by Bank of America Merrill Lynch showed that investors are the most bearish on euro-zone equities in six years and their positioning in the region’s equity market this month dropped to underweight for the first time since December 2016,” according to Bloomberg.
For more information on the European markets, visit our Europe category.