ECB Ends QE: 5 ETF Areas Likely to Gain
The European Central Bank has confirmed the end of its €2.5-trillion net asset purchase program this month. The program, which was intended to stimulate economic growth, was stopped despite renewed growth worries in the bloc.
However, the bank pledged to keep the record low rates unchanged at least till mid-2019. The ECB also hinted at moderation in economic growth in recent times and the need to keep the policy rate constant. The bank chief also noted that the drivers of economic recovery are “still in place."
Course of QE
The ECB launched its asset-buying program at the start of 2015 long after the UK and the United States resorted to similar actions to boost their economies. Post that, the bank extended the program by six more months to March 2017 at the end of the year. The bank announced in December 2016 that it would lower its bond-buying program to 60 billion euros a month from 80 billion from April but has extended the program to December 2017.
Again, in October 2017, the ECB extended its asset-purchase program through September 2018 at a reduced rate of €30 billion. Those purchases have been reduced to €15 billion in the final quarter of 2018. And now it announced the closure of the program.
Inside ECB Guidance
The recent volley of weaker-than-expected economic data probably led the ECB to cut its outlook on the Euro zone. The Central Bank has now reduced its 2018 growth forecast from 2.0% projected in September to 1.9%, holding global trade tensions responsible. The GDP growth for 2019 was cut to 1.7% from 1.8%.
Added to this, confusion regarding Italy’s budget deal and Brexit can act as headwinds. However, the growth projection for 2020 remained constant. Compared with the September 2018 projections, the guidance for employment remained same for 2018, 2019 and 2020.
The organization now forecasts annual HICP inflation at 1.8% for 2018 (up from 1.75 forecasted before) and 1.6% for 2019 (down from 1.7% guided in September). The inflation forecast for 2020 was in line with the September estimate.
ETFs to Play After the End of QE
Euro
If the Euro zone manages to stage a recovery sooner than expected and the greenback strength remains in place for 2019, a stoppage in easy money flow might boost the euro, making CurrencyShares Euro ETF FXE an intriguing pick (read: Why Euro ETFs Could Be a Winning Bet in 2019).
Financials
Since financial stocks are likely to benefit from a rising rate environment, iShares MSCI Europe Financials ETF EUFN may gain ahead. A good Italy budget and Brexit deal should perk up the fund. EUFN focuses on providing exposure to the financial sector in Europe. From a geographical perspective, it has high exposure to the U.K., Switzerland, Germany and France (read: Brexit Draft Deal Makes These Sector ETFs a Must-See).
Small Cap
Since small-cap stocks better reflect the domestic economy and are not affected by negative currency translation like large-cap stocks are, small-cap ETFs like WisdomTree Europe SmallCap Dividend Fund DFE,SPDR EURO STOXX Small Cap ETF SMEZ and WisdomTree Europe Domestic Economy ETF EDOM might emerge as solid picks.
Dividend Growers
As the ECB withdraws support, some volatility is likely to hit the market. In the wake of this, investors will need some quality exposure like dividend growers ProShares MSCI Europe Dividend Growers ETF EUDV. The fund targets companies that are currently members of MSCI Europe and have increased dividend payments each year for at least 10 years and are thus stable in nature (see all European Equity ETFs here).
High-Yield
A focus on high-yield will also offer investors some solid current income. In order to do that, investors can bet on WisdomTree Dynamic Currency Hedged Europe Equity Fund DDEZ, which yields about 3.48% annually.
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ISHARS-MS EU FN (EUFN): ETF Research Reports
WISDMTR-EU SC D (DFE): ETF Research Reports
PRO-SH EUR DV G (EUDV): ETF Research Reports
CRYSHS-EURO TR (FXE): ETF Research Reports
SPDR-EU STX SC (SMEZ): ETF Research Reports
WISDMTR-DCH EUR (DDEZ): ETF Research Reports
WISDM-EUR DEF (EDOM): ETF Research Reports
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