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Fed Hike Looks Likely, Time for High Dividend Europe ETFs?

The possibility of a sooner-than-expected Fed rate hike has left many investors apprehensive about the stability of their income-generating holdings. Investors should note that on August 29, the yield on the 10-year U.S. Treasury note was 1.57%. Though the benchmark Treasury yield is still below 2%, it may crawl up if the Fed acts soon.

This in turn will dull demand for U.S. dividend ETFs. Thus for edgy investors, we offer a few choices beyond the border which may earn investors solid yields as well as capital appreciation.

Take a Look at Europe

Though emerging market stocks and ETFs offer astounding yield, this pack of securities may see a sell-off post Fed tightening. Fear of a cease in cheap dollar inflows may trigger a panic-driven sell-off in the emerging market segment in the coming days as well (read: 3 Currency ETFs Crushed in Emerging Market Rout).

So, let’s look at Europe instead as things across the pond are crawling toward improvement. As Brexit fears seem exaggerated at this moment with the United Kingdom coming up with decent economic readings, investors may now try investing in Europe. Zew Economic Sentiment Index for the Euro zone rose to 4.60 in August from -14.70 in July. The reading also breezed past market expectations of -6.3.

The flash Eurozone PMI Composite Output Index was 53.3 in August 2016, up from 53.2 in July and ahead of market expectations of 53.1. Notably, the reading was the best since January.

Plus, consumer prices in Eurozone inched up 0.2% year over year in July 2016, subsequent to a 0.1% rise in the earlier month. This was the largest gain in consumer prices since January. Though consumer prices dropped 0.6% sequentially in July, ECB chief Mario Draghi expects inflation to gather steam in 2017 and 2018. As of now, ECB’s inflation forecasts are 1.3% for 2017 and 1.6% for 2018.

Inside the Corporate Well-Being

Coming to the corporate picture, European companies under the Stoxx 600 index recorded a 14.6% year-over-year fall in earnings per share in Q2, which was narrower than analysts’ expectations of a 22% drop. Eight of the 10 key European sectors outdid expectations in the quarter. Also, as per Wall Street Journal, loans to Eurozone companies grew at a quicker annual pace in July than in the previous month.

ETFs to Play

Overall, recent developments indicate that the economy is on the right track, but will have to go a long way to regain the lost ground. Plus, if the ECB offers further accommodative measures in the next meeting, Europe investing can turn out to be an intriguing idea.

Given this, investors can tap the below-mentioned Europe ETFs for likely capital gains. These products offer over 3% yield. Even if these products end up seeing capital losses, sturdy yield will definitely make up for some losses. Here, we have picked currency-hedged ETFs considering the fact that the greenback will gain strength if the Fed tightens policies (read: Dividend ETFs Explained: What Investors Need to Know).

O'Shares FTSE Europe Quality Dividend Hedged ETF OEUH

The fund gives exposure to stocks with high quality, low volatility and dividend yield. The fund charges about 68 bps in fees and yields about 5.51% annually. Consumer goods, health care, energy and financials get the maximum focus in the fund (see all European ETFs here).

Hedged FTSE Europe ETF HGEU

The fund looks to track the FTSE Developed Europe 100% Hedged to USD Index. It charges 27 bps in fees and yields about 4.65% annually. United Kingdom (31.15%), Switzerland (14.3%), Germany (14.29%) and France (14.3%) are the top four countries that the fund is invested in. Financials, consumer staples, health care, industrials and consumer discretionary are the top five sectors of the fund.

WisdomTree Europe Hedged SmallCap Equity Fund EUSC

The fund looks to track the European small-cap companies while hedging exposure to fluctuations between the U.S. dollar and the euro. Italy, Germany, France, Spain and Finland each has a double-digit weight in the fund. Sector-wise, the fund is heavy on industrials (25.54%), financials (18.22%) and consumer discretionary (17.78%). The fund charges 58 bps in fees and yields about 3.62%.

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WISDMTR-EUR HSC (EUSC): ETF Research Reports
 
OS-FT EUR QDH (OEUH): ETF Research Reports
 
PRO-SH FTSE EUR (HGEU): ETF Research Reports
 
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