Talk about a stellar quarter. The Vanguard FTSE Europe ETF (VGK) and the iShares MSCI EMU ETF (EZU) posted an average return of 13.46%. VGK and IEV were also two of the 10 best asset-gathering ETFs in the just completed quarter. VGK, the largest Europe ETF by assets, raked in $3.83 billion in new investments in the July-September quarter. EZU brought in a tidy $2.99 billion.
Improved fundamentals, attractive valuations and, in some cases, attractive yields are compelling investors to revisit Europe ETFs. In August, S&P Capital IQ said “Although the region’s growth is finally showing signs of life, the European Central Bank’s pledge to maintain aggressive monetary policy accommodation for the foreseeable future has enabled investors to embrace a bullish stance despite mounting liquidity tapering worries elsewhere.” [Fundamentals Looking up for Europe ETFs]
The average dividend yield on European stocks, a group still seen by some as undervalued, is around 3%. VGK, which is heavy in sectors sectors such as financials, consumer staples and industrial, yields about 3.3%. EZU has 30-day SEC yield of 2.17%. That ETF allocates roughly 60% of its weight to financials, industrials, discretionary and staples stocks. Investors should note EZU is heavily tilted toward the largest, and perceived to be steadier Eurozone economies as France and Germany combine for 60.6% of the ETF’s geographic exposure. [ETFs for an Improving Europe]
VGK and EZU are not the only Europe ETFs investors have been embracing in recent months. The SPDR EURO STOXX 50 (FEZ) posted a third-quarter gain of 15.1% while hauling in $674.9 million in new assets. FEZ yields 2.93%, but its price-to-book ratio of 1.36 indicates a discount to the 1.9 average found among developed markets. [A Vital Emerging Markets Chart]
France and Germany combine for over two-thirds of FEZ’s weight. The iShares Europe ETF (IEV) offers a less concentrated bet on the Eurozone, but that has not diminished the fund’s recent bullishness. IEV notched a third-quarter gain of 12.5% while pulling in $622.6 million in new assets.
The U.K. and Switzerland combine for almost 47% of IEV’s weight. With AAA-rated Sweden and Denmark combining for another 6.4% of IEV, a majority of the ETF’s geographic exposure is outside of the Eurozone. With a three-year standard deviation of 19.8%, IEV is almost 400 basis points less volatile than EZU.
iShares Europe ETF
ETF Trends editorial team contributed to this post.
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.