Many have turned to international equities to access relatively inexpensive markets as compared to the U.S., with many looking at Europe-related exchange traded funds to gain exposure to improving fundamentals and an expanding economy.
“We remain overweight eurozone equities,” according to a BlackRock research note.
The Eurozone economy is currently enjoying a loose monetary policy to help fuel its ongoing growth. European Central Bank President Mario Draghi has deliberately stalled on proving details to reducing its stimulus package, which buys more time for inflation to pick up from its stubbornly low levels.
“We believe that the ECB will likely finish its asset purchase program by the end of 2018,” BlackRock said.
Meanwhile, macroeconomic data has performed well and could continue to support a sustained economic expansion as PMIs and economic sentiment indicators held up well in the face of a stronger euro currency – the EUR has appreciated 13% against the USD year-to-date. Some, though, are growing concerned a a strengthening euro is eating into Eurozone’s company earnings.
Related: Europe ETFs: Rally Still in Early Innings
Nevertheless, earnings-per-share growth is still higher than in the U.S. and may continue to drive eurozone equity outperformance.
“Even with strong performance year-to-date and slight downward revisions in still-positive earnings, eurozone equities remain good values compared to developed market counterparts such as the United States and we continue to see them as an attractive opportunity moving forward,” according to BlackRock.
ETF investors who are still interested in the Europe story have a number of options available, such as the iShares Core MSCI Europe ETF (NYSEArca: IEUR), which is seen as a cheaper “core” alternative to older iShares Europe ETF (NYSEArca: IEV), along with the iShares MSCI EMU ETF (NYSEArca: EZU), which is comprised of of euro member states,
Alternatively, investors who believe the euro currency could weaken after its recent rally and are bullish on the Eurozone’s outlook can turn to currency-hedged ETF options, such as the the Deutsche X-trackers MSCI EMU Hedged Equity ETF (NYSEArca: DBEZ), iShares Currency Hedged MSCI EMU ETF (NYSEArca: HEZU) and WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ). These currency-hedged Europe ETFs may outperform non-hedged Europe funds if the euro depreciates against the U.S. dollar.
For more information on European markets, visit our Europe category.