It has taken awhile for financial services exchange traded funds focusing on U.S. banks to get going this year, but the iShares MSCI Europe Financials ETF (NYSEARCA:EUFN) has been on a roll most of this year.
After tumbling last year, EUFN is higher by nearly 20% this year, an impressive performance when considering some lingering concerns facing European banks.
Those concerns increased after the European Central Bank (ECB) in June allowed Spain’s Banco Popular to be sold for essentially nothing, calling into question the recapitalization effort of Italy’s Banca Monte dei Paschi di Siena and plans to shape other Italian banks.
“Good news in the euro-area countries that were at the heart of the region’s debt crisis is pushing bank shares higher even as the broader market declines,” reports Bloomberg.
While it is not good news for taxpayers, the recently approved bailout of Monte dei Paschi could be a positive for EUFN.
“The European Union has approved a 5.4 billion euro ($6.1 billion) state bailout of Italy’s fourth-largest lender, Monte dei Paschi di Siena (BMPS.MI), taking the total amount of Italian taxpayer funds deployed to rescue banks over the past week to more than 20 billion euros,” according to Reuters.
The $1.21 billion EUFN tracks the MSCI Europe Financials Index and holds 84 stocks. The U.K., Switzerland and Sweden combine for about 48% of the ETF’s weight, underscoring the point that this is not a dedicated Eurozone ETF. Spain and Italy combine for 17% of EUFN’s roster.
European economies are expected to enjoy earnings growth in the year ahead from cyclical sectors that benefit from improved global growth and a weakening euro currency. Europe will likely benefit from increased trade as the U.S. led bout of reflation helps bolster stronger growth outlooks globally.
“While lenders globally benefited from speculation of higher interest rates, the Euro Stoxx Banks Index got an additional boost in the past month from receding concern about lender stability after Banco Santander said it will take over Banco Popular Espanol, Italy committed to clean up two failed banks in its biggest rescue on record and the European Union formally approved state aid for Banca Monte dei Paschi di Siena,” according to Bloomberg.
Investors can play a possible pullback in in EUFN and European banking names with the new Direxion Daily European Financials Bear 1X Shares (NYSEARCA:EUFS), which debuted in August. EUFS is an inverse though not leveraged ETF.
For more information on the financial sector, visit our financial category.