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Health Of Eurozone Recovers: ETFs To Watch

The eurozone is showing signs of a speedy recovery, as evident from the four and a half year high expansion in its business activity for the month of November. According to a flash estimate by data firm Markit, the eurozone purchasing managers’ index inched up to 54.4 this month from 53.9 in October . This surpassed the threshold score of 50, which hints at an expansion in activity. The growth profile has weakened in recent times in the eurozone, failing rounds of monetary easing. The bloc recorded 0.3% growth in Q3, declining from a 0.4% rise in Q2 and falling short of market expectation. The growth rate in Q3 was the softest in a year as development cooled down in the eurozone’s heavyweights Germany and Italy. In such a backdrop, the news of fast-expanding business activity spread optimism among investors. New business growth was noticed in both service and manufacturing sectors. Germany turned up a super performer as companies experienced “their strongest monthly gains in new business orders for two years”. The boost has come at an opportune moment, when the ECB is mulling over further easing in policies to boost inflation and economic growth. The European Central Bank (ECB) president, Mario Draghi, reassured of a more intensified and protracted QE measure, if need be. He reaffirmed the evaluation of the monetary policy by the end of this year based on a volley of economic data. However, the latest upbeat data raises confusion over the ECB’s potential altruism in the December meeting, forcing some to believe that further easing may not be as generous as thought previously. But a stubbornly low inflation profile, thanks to the commodity market rout, gives all reasons to expect further monetary easing from the ECB. Overall, the chief economist at Markit indicated that the eurozone was “on course for one of its best quarterly performances over the past four and a half years.” Based on this data, he expects the euro bloc to post 0.4% economic growth in the final quarter of the year. Meanwhile, Greece received a bailout loan from the euro area member states as the former agreed to enact the stated austerity measures. ETFs to Watch Below, we highlight three European ETFs that could be tapped to play the latest uptick in business sentiments. To do this, we land up on currency-hedged ETFs, as this is the most-watched investing technique currently, thanks to opposing monetary policies in the U.S. and the eurozone. While the greenback is strengthening on a looming rate hike in the U.S., the euro is sliding on accommodative policies by the ECB (read: Guide to Currency Hedging ETFs ). WisdomTree Germany Hedged Equity ETF (NASDAQ: DXGE ) Since Germany was the main driver of the latest surge in business activity, German ETFs warrant a look. This German ETF holds 75 securities in its basket. It has a slight tilt toward the consumer discretionary sector, with 21.7% share, followed by double-digit exposure each in financials, industrials, materials and healthcare. It has managed assets worth $286 million, and trades in good volume of 165,000 shares a day, on average. The fund charges 48 bps in annual fees, and is up 9.6% so far this year (as of November 23, 2015). DXGE has a Zacks ETF Rank of 2 with a Medium risk outlook. WisdomTree Europe Hedged Equity ETF (NYSEARCA: HEDJ ) This fund can be viewed as a replica of the broad-based European growth. The fund appears rich, with AUM of nearly $21.3 billion. Its expense ratio comes in at 0.58%. Holding 130 securities in its basket, the product is pretty well spread out across components, with no firm making up for more than 6.19% of its assets. Consumer staples, industrial, consumer discretionary, financials and healthcare each have double-digit weight in the fund. In terms of country allocations, Germany and France are leading with 26.1% and 24.2% share, respectively, followed by the Netherlands (17.2%) and Spain (16.5%). The Zacks Rank #3 (Hold) fund is up 11.2% so far this year (as of November 23, 2015). WisdomTree Europe Hedged SmallCap Equity ETF (NYSEARCA: EUSC ) Since small-caps companies tend to pick up more when an economy improves, a look at the small-cap European companies seems justified. The fund provides exposure to close to 237 of the smallest European companies. This ETF has amassed about $245.7 million. The product is highly diversified, with no stock accounting for more than 2.06% of the portfolio. Sector-wise, industrials get the maximum exposure, at 25.9% of the portfolio. Financials and consumer discretionary also get double-digit allocation each, while energy gets the least exposure, at only 2.35% of the basket. As far as country exposure is concerned, Italy (21.1%), Germany (17.2%), France (16.4%) and Finland (13.1%) get top priority. The fund charges 58 bps in fees, and is up about 1.6% so far this year. Original Post

Bet On European Economic Recovery With This New ETF

Ongoing policy easing and hopes for further stimulus (if need be) have put the spotlight on the Euro zone stocks and related ETFs. Since available funds are tacking on gains and assets on a potential economic recovery, issuers are putting out all the stops in rolling out more and more innovative Europe-based funds. Most recently, WishdomTree launched the WisdomTree Europe Local Recovery Fund (BATS: EZR ) , which better reflects the European growth prospects on corporate profile. Let’s dig a little deeper and find how one can wager on the potential bounce in the European economy by this ETF (read: ETF Strategies for 2H ). EZR in Focus The fund seeks to provide exposure to the European companies susceptible to economic growth prospects in the Euro zone and that generate over 50% of their revenues from Europe. Thus the fund may benefit from the ongoing economic recovery and rising purchasing power in the Euro zone. By tracking the WisdomTree Europe Local Recovery Index, the fund fulfills its objective. This strategy results in the fund holding 212 stocks in its basket, which are quite well diversified across the portfolio. The top 10 names form roughly 15% of total assets, with just 2.22% allocated to the top fund holding – Total SA. (NYSE: TOT ), BASF SE ( OTCQX:BASFY ), Allianz SE ( OTCQX:AZSEY ) and BNP Paribas ( OTCQX:BNPQY ) are some of the other top holdings of the fund. However, there seems to be some sector concentration in the fund as the top three sectors – Financials, Industrials and Consumer Discretionary- alone occupy four-fifth of total fund assets. Energy and Information Technology have the lowest allocations in the fund. Capitalization-wise, the fund has a mixed approach with about 35% of weight invested in small and mid caps each, while the remaining 30% goes to large-cap stocks. While France and Germany have roughly 25% allocation each in the fund, Italy occupies about 16% and Spain has 9.42%. The fund charges 48 basis points as fees making it a relatively middle-of-the-road product in terms of costs in the European ETFs space. How Does It Fit in the Portfolio? The newly launched ETF can be a good choice for investors looking to gain exposure to the pure possibilities of the Euro zone. This is especially true given that these companies are closely tied to the European economy and generate a huge bulk of their revenues from the domestic market and thus remain less susceptible to euro depreciation (read: 3 European ETFs Rebounding Sharply ). Notably, Euro zone is presently undergoing a QE stimulus and the European central bank has recently hinted at the beefing up of the ongoing monetary policy, if growth slackens further. These measures are expected to spur bank lending, boost activities and battle low inflation within the Euro zone. ETF Competition The broad European equities fund space is teeming with a number of ETFs such as the Vanguard FTSE Europe ETF (NYSEARCA: VGK ) , the SPDR Euro Stoxx 50 ETF (NYSEARCA: FEZ ) , the iShares MSCI EMU ETF (NYSEARCA: EZU ) and the iShares Europe ETF (NYSEARCA: IEV ) . However, aforementioned ETFs are mostly large-cap in nature and thus can’t be direct competitors to this newbie ETF EZR. Since large-caps only take about one-third of its portfolio, small-cap Europe ETFs including the SPDR STOXX Small Cap ETF (NYSEARCA: SMEZ ) and the WisdomTree Europe SmallCap Dividend Fund (NYSEARCA: DFE ) are likely to pose as threats. In fact, country and sector specification-wise, EZR and SMEZ share many similarities. The newly launched fund is cheaper than DFE – which charges 58 basis points as fees but it is slightly costlier than SMEZ which charges 45 bps in fees. Also, given the greenback strength in the wake of looming policy tightening and euro depreciation, this un-hedged ETF might see tough times ahead. Otherwise, we expect EZR to be successful among risk-averse investors as capitalization-wise, its spectrum is diversified. So, several risk-fearing investors who seek to gain true exposure to the Euro zone but dread the volatile nature of the smaller-capitalization might find EZR’s midway approach lucrative. Link to the original post on Zacks.com

The Strongest European ETF Will Surprise You

Summary Ireland’s markets stands out in tepid Eurozone markets. A closer look at the Ireland ETF. Outperformance in Ireland compared to other Eurozone equities. Buoyed by impressive economic growth, the iShares MSCI Ireland Capped ETF (NYSEArca: EIRL ) has climbed 13.5% year-to-date, good for one of the best performances among single-country exchange traded funds tracking Eurozone nations. However, there is more to the story when it comes the steadiness of EIRL and the Irish economy. In the first quarter, the Irish economy expanded by an upwardly revised 5.2% in 2014, its best performance since 2007, and the country’s economy is now larger than at the height of its so-called Celtic Tiger boom. Ireland’s central bank pointed to support from domestic demand as robust retail sales and an improved labor market bolstered the economy . Often seen as the steadiest hand of the five PIIGS ETFs, is up 22.2% over the past year. “A big reason the country has done so well is that it applied austerity in quick and dramatic fashion by cutting spending and raising taxes. This, along with a weak euro which helped bolster exports, has Ireland’s government predicting gross domestic product growth of 6 percent this year, matching last year’s pace. In addition, the country’s unemployment rate has dropped, from 15 percent in 2012 to 9.7 percent today ,” reports Eric Balchunas for Bloomberg . The $163.3 million EIRL holds 24 stocks with the materials and consumer staples sectors combining for half the ETF’s weight. The ETF is top heavy as CRH Plc occupies almost 21% of EIRL’s weight on its own. EIRL’s top five holdings combine for over 54% of the fund’s weight. “Ireland’s performance over the past four years stands in stark contrast to its peripheral peers in the euro zone. Portuguese stocks are down about 12 percent, equities in Italy are up 32 percent, and Spain’s are up 15 percent. Unsurprisingly, debt-ridden Greece has been the worst performer, down 33 percent since the debt crisis,” according to Bloomberg. iShares MSCI Ireland Capped ETF (click to enlarge) Share this article with a colleague