Not all diversified Europe ETFs are dedicated to the Eurozone, a trait investors should be aware of at a time when many market observers are bullish on Eurozone equities and the region’s economic recovery.

While many diversified Europe ETFs are heavily allocated to Germany and France, the Eurozone’s two largest economies, these funds also feature significant exposure to the U.K. and Switzerland as well as exposure to some Nordic countries. However, the X-trackers MSCI EMU Hedged Equity ETF (NYSEArca: DBEZ) is a dedicated Eurozone play.

DBEZ “seeks investment results that correspond generally to the performance, before fees and expenses, of the MSCI EMU IMI U.S. Dollar Hedged Index. DBEZ offers investors purer access to Eurozone equities while seeking to mitigate exposure to currency fluctuations between the U.S. dollar and the euro,” according to DWS.

European Equities Still Attractively Priced

Despite the recent rally in European equities, valuations still look attractive relative to domestic stocks. On a forward earnings basis, European stocks have gotten cheaper continually since 2015, and price-to-book value for the region shows European names trading at a multi-year discount to the U.S.

“We moved to an overweight position on Germany given the record levels of exports that the German economy is currently producing, coupled with a still relatively attractive valuation to the U.S.,” said DWS in a recent note.

DBEZ allocates over 60 percent of its weight to German and French stocks. Spain, the region’s fourth-largest economy, and the Netherlands combine for 20 percent of the fund’s weight.

“So, the bottom line is that there are some significant differences between accessing Europe, and accessing the Eurozone. Investors should at least be aware of the key weighting differentials that each region has in terms of the big four European equity markets – the UK, Germany, France, and Switzerland,” according to DWS.

DBEZ allocates over 34% of its combined weight to financial services and industrial stocks. The consumer discretionary and consumer staples sectors combine for 21.7% of the ETF’s weight. DBEZ jumped 1.7% last week.

For more information on the European markets, visit our Europe category.

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.