ETF Investors Should Look to Currency-Hedged Europe Strategies

Investors should look to international markets like Eurozone equities and region-specific ETF to track more attractive opportunities for growth.

“The region is Europe, where we have been arguing for some months that a combination of an improved macro environment, positive earnings growth, and still cheap valuations make this swathe of developed markets relatively attractive,” Robert Bush, ETF Strategist for Deutsche Asset Management, said in a research note.

European markets are enjoying a number of supporting factors that could help maintain its current momentum. For instance, the economic outlook remains solid, consumer sentiment is improving, the Purchasing Manager Index reveals a strengthening economy, a potentially weakening euro currency will bolster exporters and the region looks relatively inexpensive.

As many look to European markets for potential opportunities, investors should consider foreign exchange risks or the negative effects associated with fluctuating foreign currencies.

The U.S. dollar is expected to strengthen on a number of factors. For instance, the U.S. index of business conditions rose to a three-year high, adding to the improving U.S. economic outlook. Furthermore, Federal Reserve Chair Janet Yellen reaffirmed the central bank’s commitment to hiking rates, despite disappointing inflation results. Deutsche Asset Management projects that the euro currency could weaken to an average $1.10 in the year ahead, compared to its current price of around $1.19.

“Our view, over the next couple of months, the euro won’t continue its strong appreciation but begin to slow down,” Abby Woodham, ETF Strategist for Deutsche Asset Management, told ETF Trends in a call. “This is good for the Eurozone, especially German exporters.”

Consequently, investors who are seeking Eurozone market exposure may look to currency hedged ETFs, which may outperform non-hedged funds as the USD strengthened.