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European ETFs Fall Out of Investor Favor Since Brexit

The performance of Europe ETFs may have recovered in the last one month (as of August 15, 2016) as indicated by 3.8% returns offered by Vanguard FTSE Europe ETF VGK. However, the fund flows indicate shaky investor sentiment over Europe ETFs in the post-Brexit world (read: Europe After Brexit: 5 Keys to Investing with ETFs).

When Britons decided to leave the Europe Union (EU) on June 23, with the ‘leave’ camp gaining 51.9% Briton’s support, the global market got caught in a web of uncertainties. Most questions were raised over the future and stability of the region under consideration. European stocks in fact recorded the biggest one-day fall on June 24.

As per S&P Global Market Intelligence, investors took out over $6.4 billion from the 10 largest U.S.-listed Europe exchange-traded funds in the two months ended July 30, going by an article published in Wall Street Journal. Added to this, feeble growth, mounting bad debt in the Italian banking system and deflationary threats kept the region on the edge(read: Brexit Shocker Forces These European ETFs Over 10% Lower).

Inside Asset Losers

As soon as Britain cuts the cord with the EU, its importance as a corporate transit to the rest of Europe would be lost, going by an article in CNBC. Many global institutions may even want to shift their base from London to the German capital Frankfurt – another hot spot in the European Union. As many financial institutions are likely to be hit by Brexit, the Europe financials stocks and ETFs are likely to be the direct underdogs.

Many other economies like the Netherlands and Greece are now expected to follow the footsteps of Britain. Investors should note that VGK shed about $1.45 billion in assets since June 23 to August 12, 2016 (read: UK Votes for Brexit: ETFs Winners & Losers).

WisdomTree Europe Hedged Equity Fund HEDJ lost about $2.16 billion in assets during the same time frame as Euro did not lose a lot of strength. The Euro ETF CurrencyShares Euro ETF FXE lost about 2.7% on June 24, just after the Brexit. Since then, FXE hovered in the range of $107 to nearly $109.

iShares MSCI Eurozone ETF EZU saw assets worth $1.84 billion gushing out during this period. First Trust Europe AlphaDEX Fund FEP shed about $23.4 million in assets since Brexit.  

In fact, one of the most stable economies of the Euro zone, Germany, also seems to have lost investors’ support as iShares MSCI Germany ETF EWG saw outflows of $286.5 million since Brexit to date (as of August 15, 2016). So was investors’ perception of France, with iShares MSCI France ETF EWQ shedding about $9.78 million in assets.

iShares MSCI Spain Capped ETF EWP and iShares MSCI Italy Capped ETF EWI witnessed outflows of about $133 million and $146.1 million during the said period. Both funds have financials as their top sectors with about one-third of the total exposure.

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CRYSHS-EURO TR (FXE): ETF Research Reports
ISHARS-FRANCE (EWQ): ETF Research Reports
ISHARS-EMU IDX (EZU): ETF Research Reports
ISHARS-ITALY (EWI): ETF Research Reports
WISDMTR-I HE FD (HEDJ): ETF Research Reports
ISHARS-GERMANY (EWG): ETF Research Reports
ISHARS-SPAIN (EWP): ETF Research Reports
FT-EUROPE AD (FEP): ETF Research Reports
VANGD-FTSE EUR (VGK): ETF Research Reports
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