Brexit took a backseat quickly as the Covid-19 pandemic was at the forefront of the Eurozone’s challenges in 2020. Fast forward to today and Europe is falling behind in its recovery.
“The eurozone’s economy is diverging sharply from the U.S. and China, as stubbornly high coronavirus infections, extensive Covid-19 restrictions and a painfully slow vaccine rollout delay Europe’s recovery from last year’s historic economic downturn,” a Wall Street Journal article said. “Fresh data Tuesday highlighted an economic gap between the eurozone and the U.S. and China that is likely to widen this year, given that the U.S. is proceeding more quickly than the European Union in rolling out vaccines and China remains largely free of the virus.”
Thankfully, ETF provider DWS offers funds with a hedging component built into the fund, such as the Xtrackers MSCI Europe Hedged Equity ETF (DBEU) and Xtrackers MSCI Eurozone Hedged Equity ETF (DBEZ). The need for hedging the euro is underscored by a surprisingly strong dollar thanks to a strong equities market.
DBEU seeks investment results that correspond generally to the performance of the MSCI Europe US Dollar Hedged Index. The index is designed to track the performance of the developed markets in Europe, while mitigating exposure to fluctuations between the value of the U.S. dollar and the currencies of the countries included in the underlying index.
DBEZ seeks investment results that correspond generally to the performance of the MSCI EMU IMI US Dollar Hedged Index. The index tracks the performance of equity securities based in the countries in the European Monetary Union, while also seeking to mitigate exposure to fluctuations between the value of the U.S. dollar and the euro.
In spite of Europe’s economic challenges, both funds are up the last three months.
Europe Has Time to Turn It Around
Thankfully, 2021 is still in the early going, and Europe has time to turn things around. A vaccine rollout should help.
“If Eurozone countries are able to ensure a quick rollout of vaccinations, a better control of the pandemic and an easing of lockdown measures, the Eurozone economy is likely to rebound from the second quarter, driven by pent-up consumers demand,” Deloitte analysis by Dr. Alexander Boersch noted. “There are downside risks along the way, however, such as delays in the vaccination campaign or scarring in the economy and labor markets. But there are also upside risks, especially the possibility of a consumer boom in the post-pandemic economy, driven by stronger than anticipated pent-up demand due to accumulated savings.”
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