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Europe Financial ETF May Be a Bargain

This article was originally published on ETFTrends.com.

European bank stocks have been underperforming their broader market, but as investors turn to value plays in an extended bull market, some may look to one targeted Europe exchange traded fund to access this segment.

The iShares MSCI Europe Financials ETF (EUFN) provides a targeted play on European financial companies. EUFN has gained 1.7% over the past month and is flat year-to-date.

The ETF also looks relatively more attractive on a valuation standpoint. Specifically, EUFN is trading at a 12.0 price-to-earnings and a 1.0 price-to-book, compared to the MSCI Europe Index's 14.1 P/E and 1.7 P/B, and the S&P 500's 16.9 P/E and 2.8 P/B.

With greater emphasis being placed on the financial sector in a rising rate environment, investors may also turn to European stocks that have yet to catch up with their U.S. peers, reports Justina Lee for Bloomberg.

Eurozone Could Pick Up

Analysts argue that growth in the Eurozone could pick up and funding conditions could tighten, which should help support European banks' bottom line.

“As long as the recovering growth continues, there’s scope for banks to improve their earnings and they’re still trending fairly cheaply, so we think banks can be a reasonably good investment,” Stephen Macklow-Smith, head of European equity strategy at JPMorgan Asset Management, told Bloomberg.

Related: 8 Timely Europe, Japan ETFs Leading the Pack

Macklow-Smith believed that there is room for the yield curve to modestly steepen, bolstering loan interest for banks, as growth is expected to remain solid this year.

With the economy improving, European earnings have more room to strengthen.

“Profitability is picking up kind of slowly and unevenly geographically,” Will Hobbs, the head of investment strategy at Barclays’s wealth management and is also recommending financial stocks to clients, told Bloomberg. “Loan growth should hopefully pick up and eventually the central bank should be a bit more helpful.”

For more information on the European markets, visit our Europe category.

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