CVIE: Pragmatic Approach for Europe Exposure | ETF Trends

With some of the lowest valuations among all developed markets, eurozone equities have long tantalized investors. However, the region’s stocks have also long disappointed investors.

Entering 2023, there was optimism that scenario would change for the better, but that thesis encountered headwinds by way of challenging economic data — some that implies that some eurozone economies are flirting with recession territory. Predictably, rough economic data has spurred a spate of poor sentiment aimed at European stocks.

On the other hand, when sentiment turns overly negative toward any asset class, it could become a contrarian buy signal. It remains to be seen if that is the case with eurozone stocks, but investors have options for nibbling at the asset class thanks to exchange traded funds such as the Calvert International Responsible Index ETF (CVIE).

As its name implies, CVIE is an international stock fund, not a dedicated Europe ETF, but the Calvert offering does have enough exposure to Europe such that investors can tap the fund as an avenue for positioning for a eurozone rebound.

As Eurozone Idea, CVIE Merits Consideration

Among the factors that could make CVIE appealing as 2023 draws to close and as market participants mull ideas for 2024 is that while eurozone economic data has left much to be desired, stocks there haven’t been taken to task. That could be a sign of resiliency.

“While the average European stock, measured by the equal-weighted MSCI EMU Index, is down from this year’s peak at the end of July, it has not broken out to the downside,” noted Charles Schwab’s Jeffrey Kleintop. “Rather it has traded sideways over the past five months that the economic surprise index was below zero. And the average European stock has maintained its outperformance of the average U.S. stock so far this year, despite the big gap in economic momentum.”

That’s meaningful to CVIE, which follows the Calvert International Responsible Index, because three of the ETF’s top 10 geographic exposures are eurozone nations. As noted above, another potential catalyst for CVIE’s European holdings is that sentiment is now so dour that even modestly good headlines could act as positive headlines.

“Notably, Eurozone economic sentiment by investors tracked by Sentix is currently dismal, with the confidence index near recessionary lows in August,” concluded Kleintop. “Global investors are no more cheerful. According to Bank of America’s most recent monthly survey in August, the net percentage of fund managers expecting European stock markets to weaken over the coming months climbed to 71%. This suggests any improvement in confidence could provide lift to European stocks.”

For more news, information, and analysis, visit the Responsible Investing Channel.