European stocks will lag their U.S. counterparts again this year, but some investors are betting that will change next year and they’re putting their money where their mouths are, piling into US-listed Europe equity ETFs in recent weeks.
For investors looking to participate in the value proposition offered by European equities while generating income, the ProShares MSCI Europe Dividend Growers ETF (CBOE: EUDV) is a fund that makes a lot of sense.
EUDV follows the MSCI Emerging Markets Dividend Masters Index, which targets MSCI Emerging Market components that have increased dividend payments each year for at least seven consecutive years.
“Investors have poured $1.5 billion into U.S. ETFs focused on European assets in November, data compiled by Bloomberg show. That influx puts the funds on track to take in the most cash in almost two years,” reports Bloomberg.
Examining Europe
Some data points suggest that European equities are under-owned by global investors, but the asset class is certainly inexpensive.
Europe’s equities also look more attractive, with valuations of European and U.S. equities exhibiting their widest divergence since the end of 2016 on certain measures. According to FactSet data, the Stoxx Europe 600 was trading at 14 times forecast earnings, compared to the S&P 500’s 17 times, which represents a wider gap than its long-term average over the past decade.
“Improved economic data is tempting investors to take a look at the region,” according to Bloomberg. “A gauge of European manufacturing rose to a three-month high in November, while another report showed Germany unexpectedly dodged a recession, expanding 0.1% in the third quarter. It’s hardly a stellar comeback, but for some, it suggests Europe has stabilized and is starting to bounce back.”
Related: A Differentiated Approach to REIT Selection
Investors may want to look back into Europe region-related ETFs as some of the bumps are smoothed out. Plus, many Europe ETFs are home to multi-national companies that are not heavily reliant on local economies to drive returns, meaning these funds can still perform even if some regions in Europe see economic softness.
EUDV allocates about a quarter of its weight to the British and Swiss stocks, according to ProShares data. Home to 34 stocks, EUDV yields 2.15%, implying plenty of room for dividend growth.
For more information on dividend stocks, visit our dividend ETFs.
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.