Europe exchange-traded funds have been a minefield for investors this year. For investors eyeing eurozone economies, the European Central Bank (ECB) has not, despite its best efforts, encouraged investors to dive back into those markets.
There was Brexit in Great Britain, and several non-eurozone economies are using negative interest rates with mixed results. The region is also dealing with banking issues, particularly in the eurozone. With woes for some of Germany's big banks to a borderline banking crisis in Italy, the eurozone's third-largest economy, it is not surprising the region's financial services stocks are struggling.
While Europe ETFs have been disappointing this year, that could also be a sign that now is the time to reconsider the asset class. A practical starting point is with the Vanguard FTSE Europe ETF (NYSE: VGK). VGK follows the FTSE Developed Europe All Cap Index, which includes from Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.
Expansive Breadth With VGK
With the U.K., Switzerland and Sweden combining for about half of the ETF's weight, a significant portion of VGK's lineup hails from outside the eurozone.
“Many of the fund’s sector and country weightings are similar to the U.S. open-end Europe-stock category average. However, it has greater exposure to financial services stocks and a little less exposure to the technology sector,” said Morningstar in a recent note.
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Although some new reforms and regulations are seen as steps in the right direction for the eurozone's fractured banking systems, the time it takes for investors to realize the rewards of such efforts can be trying on their patience.
VGK charges just 0.12 percent per year, or $12 on a $10,000 investment. That makes the ETF less expensive than 92 percent of rival funds, but ties it with the iShares Core MSCI Europe ETF (NYSE: IEUR) for title of least expensive U.S.-listed Europe ETF.
“The European Central Bank has pursued aggressive monetary policy to keep interest rates ultralow and stimulate demand. Low interest rates can spur demand by making it cheaper to borrow to finance consumption and investment. They also help prop up asset prices. While interest rates must almost certainly rise in the future, they will likely remain low in the near term,” added Morningstar.
Germany and France, the eurozone's two largest economies, combine for 27.6 percent of VGK's weight. However, the ETF's exposure to higher risk Spain and Italy is just 8.3 percent on a combined basis, according to issuer data.
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