FEZ holds 51 stocks and allocates over 70% of its combined weight to France and Germany, the Eurozone’s two largest economies. Financial services and industrial stocks combine for over a third of the ETF’s weight. One catalyst that could spark European stocks is a rebound in return on equity (ROE). European stocks have sharply lagged U.S. rivals on that metric for several years.
“Over the last five years, Europe has lagged the S&P 500® Index by 50%, and by 6% since the start of 2018. This is because the return on equity (ROE) for European companies is 700 basis points lower on average than for US companies. This gap needs to close for European valuations to catch up with those of the US,” according to SSgA.
For more information on the European markets, visit our Europe category.