Count European stocks among the international equities that have long left investors wanting more. That scenario could change for the better this year, but it’s understandable that some market participants won’t want the commitment of a dedicated Eurozone exchange traded fund.
One idea for reducing that geographic concentration risk is the IQ Candriam ESG International Equity ETF (IQSI). IQSI follows the IQ Candriam ESG International Equity Index, which is a diverse play on ex-U.S. developed market stocks, meaning it’s not solely dedicated to Eurozone fare.
IQSI’s Eurozone exposure could be a benefit to investors this year as economists and market observers work through downward earnings and GDP revisions from 2022 caused largely by Russia’s invasion of Ukraine.
“The onset of the war in early 2022 triggered large downgrades to GDP and consumption growth and a slight uptick in wage expectations. But as policymakers and firms enacted policies to mitigate the economic risks, the downgrades began to reverse in the late summer. The continued upgrades to both consumption and wage growth estimates in recent months are consistent with a more resilient outlook for Europe,” noted BlackRock.
The prevailing wisdom has held that the geopolitical conflict is a burden to Eurozone economies, particularly those that are dependent on Russian oil and gas to power businesses and heat homes. To that end, IQSI’s 22.6% exposure to Eurozone equities is tolerable and potentially enough to put investors in position to capitalize on attractive valuations in the region.
One of the positives regarding IQSI’s Eurozone exposure is that the aforementioned forecasts resulting from the Russia/Ukraine war may have been too dire.
“Thankfully those worst-case fears have thus far proven misplaced – global supplies of piped and liquified natural gas were redirected to Europe to refill storage depleted by Russian sanctions and shutoffs; policymakers enacted large and targeted fiscal relief packages to mitigate unbounded utility price rises; and households and firms have proactively cut extraneous energy demand,” added BlackRock.
Plus, there are already signs of life for IQSI. In the recent global equity market rebound, Germany and France — the Eurozone’s two largest economies — are outpacing U.S. stocks. Those countries combine for 18.3% of IQSI’s weight. The U.K., though not a Eurozone economy, is also offering modest upside. That country is IQSI’s second-largest geographic exposure at 14.7%.
Home to 648 stocks, IQSI devotes over 47% of its weight to the financial services, healthcare, and industrial sectors, confirming the ETF’s value tilt.
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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.