Europe ETFs to Capture a Leading Financial Sector
Propped up by the European Central Bank’s aggressive quantitative easing program, Eurozone equities and stock-related exchange traded funds, notably those with a heavier emphasis on the financial sector, could provide solid growth opportunities in the years ahead.
According to a Citigroup research note, Eurozone companies are set to deliver robust returns over the coming years, and the equities class has never been cheaper compared to fixed income in the past 60 years, reports Matt Clinch for CNBC.
“We stay bullish on European equities,” Citi said in the note. “Growth, in our view, validates the relative attraction of European equity.”
Specifically, Citi highlighted banks, insurance and financial services as some of the best areas of growth ahead.
ETF investors who would like to gain exposure to European financials can consider the iShares MSCI Europe Financials ETF (EUFN) . EUFN includes non-Eurozone members like the U.K. 31.1% and Switzerland 11.8%. Sub-sector allocations include banks 51.5%, insurance 27.1%, diversified financials 14.9% and real estate 5.9%. Its top components include HSBC Holdings 8.8%, Banco Santadner 5.2% and Allianz 4.1%. Potential investors, though, should be aware that the Europe Financial ETF is exposed to currency risks, so a depreciating euro currency could weigh on the U.S.-dollar-denominated returns.
Additionally, popular broad currency-hedged ETFs also include heavy financial sector tilts. For instance, the Deutsche X-trackers MSCI EMU Hedged Equity ETF (DBEZ) includes a 22.8% position in financials, iShares Currency Hedged MSCI EMU ETF (HEZU) has a 22.9% tilt and WisdomTree Europe Hedged Equity Fund (HEDJ) shows a smaller 11.0% position. [Europe ETFs Also Provide Investors With Attractive Yields]
The Citi analysts were also bullish on autos, health care and basic resources, but underweighted oil and gas companies.
The combined consumer discretionary, health care and materials sectors make up 31.4% of HEZU, 30.5% of DBEZ and 35.5% of HEDJ. HEZU and DBEZ both include a 5.2% tilt toward the energy sector, but HEDJ has excluded the sector from its portfolio.
iShares MSCI Europe Financials ETF
For more information on the European markets, visit our Europe category.
Max Chen contributed to this article.
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.
