Amid an improving macroeconomic outlook, European equities are performing admirably this year. In some cases, the related exchange traded funds are outpacing U.S. benchmarks. For example, the ALPS O’Shares Europe Quality Dividend ETF (OEUR) is higher by 8.22% year-to-date, which is nearly double the 4.21% returned by the S&P 500. Throw in a dividend yield of almost 2%, and OEUR becomes all the more appealing.
Additionally, OEUR’s quality traits are pertinent because investors have long been frustrated by European equities. The asset class trailed domestic stocks for years, prompting many investors to ignore Europe — a call that bore fruit. This year, there are obvious signs of life among European stocks and that strength is building against the backdrop of geopolitical turmoil in the region.
“The eurozone market, in particular, has been buoyed by the success of navigating through numerous crises created by the conflict, including reducing its reliance on Russian natural gas and investing in its own energy infrastructure, said Peter Berezin, chief global strategist at BCA Research, a Montreal-based independent provider of global investment research,” notes Morningstar.
When accounting for Russia’s ongoing war in Ukraine, a strategy such as OEUR makes sense for market participants looking to access European stocks. The ALPS ETF focuses on quality dividend growth names with attractive volatility traits. That’s not 100% insulation from war and high energy prices, but OEUR represents a solid foundation for investors looking to mitigate some of that risk.
As Andy Kapyrin, co-chief investment officer of CI RegentAtlantic, pointed out to Morningstar, European stocks have other attractive traits that could support a bullish outlook this year.
“European and international stock markets have greater exposure to sectors that are expected to do well in a higher inflationary and higher rate environment, including major consumer brands, energy suppliers, and industrials, he says. They should also benefit from the reopening of China’s economy, he says,” according to the research firm.
OEUR, which tracks the O’Shares Europe Quality Dividend Index, allocates over 39% of its portfolio to industrial and consumer staples names. From a geographic perspective, the ETF further enhances geopolitical neutrality and dividend dependability with a 20.52% weight to Switzerland — long one of Europe’s most reliable sources of payout growth and quality. Those could be alluring traits at a time when data confirm investors are revisiting European stocks.
“In January, Europe-focused equity exchange-traded funds attracted $5.1 billion in flows, the most since May 2021 and second only to emerging-markets exchange-traded funds, which pulled in $5.4 billion, according to Morningstar Direct,” concluded the research provider.
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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.
