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IMF Lowers U.S. Growth Outlook: International ETFs to Buy

Zacks Equity Research

The International Monetary Fund (IMF) lowered its growth forecast for the U.S. to 2.1% for 2017 from its previous estimate of 2.3%, owing to uncertainties around President Donald Trump’s pro-growth policies. It also cut its growth forecast for 2018 to 2.1% from the earlier estimate of 2.5%.


The IMF stated that Trump’s 3% target growth rate is a tad unreasonable, as the economy faces issues such as an ageing population and labor market at full employment. As opposed to Trump’s target, IMF expects growth to slow down to 1.9% and 1.8% in 2019 and 2020, respectively.


The organization said that its pervious optimistic outlook was based on proposed tax reforms, deregulation policies and high infrastructure spending. However, IMF said that there is a cloud of uncertainty over these reforms and that the administration failed to provide adequate details about the progress of the same.


Therefore, the IMF did not include any effects from these proposed policies, as there is still high uncertainty over how it might be implemented and how the deficits it causes will be accounted for. Moreover, all these depend on the reforms getting Congressional approval.


The IMF also criticized Trump’s budget for targeting the most vulnerable population of the country, the low and medium-income earners, as it involves massive cuts to Medicaid. Moreover, with the White house battling the repeal of Trump’s healthcare bill and being involved in the Russia probe, additional doubt over the administration’s competence to further its reforms comes in.


Let us now discuss a few ETFs that might be appealing investments amid the uncertainty around economic policy setting in the U.S. (read: ETF Asset Flow of May: Foreign Wins, U.S. Loses).


iShares MSCI EMU ETF EZU


This ETF is a play on developed European economies using the common currency with a focus on large and mid-cap equities. Though the Eurozone PMI declined slightly in June, the fundamentals for the region remain strong.


It has AUM of $13.28 billion and charges 48 basis points in fees per year. The fund has a 32.26% allocation to France, 29.41% to Germany and 10.85% to Netherlands (as of June 26, 2017). From a sector look, Financials, Industrials and Consumer Discretionary are the top three allocations of the fund, with 19.61%, 15.37% and 13.39% exposure, respectively (as of June 26, 2017). Total SA, Sanofi SA, and Bayer AG are the top three holdings of the fund, with 2.58%, 2.57% and 2.51% exposure, respectively (as of June 26, 2017). It has returned 17.81% year to date and 28.39% in the last one year (as of June 27, 2017). It has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: German and Spanish Inflation at Record Low: ETFs in Focus).


iShares MSCI EAFE ETF EFA


This fund focuses on providing exposure to equities in the EAFE region, namely Europe, Australia, Asia, and the Far East.


It has AUM of $76.85 billion and charges 33 basis points in fees per year. The fund has a 23.26% allocation to Japan, 17.38% to UK and 10.44% to France (as of June 26, 2017). From a sector look, Financials, Industrials and Consumer Discretionary are the top three allocations of the fund, with 20.73%, 14.48% and 11.96% exposure, respectively (as of June 26, 2017). Nestle SA, Novartis AG, and Roche Holding Par AG are the top three holdings of the fund, with 1.98%, 1.38% and 1.31% exposure, respectively (as of June 26, 2017). It has returned 14.84% year to date and 21.79% in the last one year (as of June 27, 2017). It has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.


iShares MSCI ACWI ex U.S. ETF ACWX


This fund focuses on providing exposure to equities in multiple developed and emerging markets except the U.S.


It has AUM of $2.29 billion and charges 33 basis points in fees per year. The fund has a 16.23% allocation to Japan, 10.24% to UK and 7.79% to China (as of June 26, 2017). From a sector look, Financials, Industrials and Consumer Discretionary are the top three allocations of the fund, with 22.25%, 11.93% and 11.21% exposure, respectively (as of June 26, 2017). Nestle SA, Tencent Holdings Ltd and Samsung Electronics Ltd are the top three holdings of the fund, with 1.36%, 1.04% and 1.03% exposure, respectively (as of June 26, 2017). It has returned 14.87% year to date and 21.35% in the last one year (as of June 27, 2017). It has a Zacks ETF Rank #2 with a Medium risk outlook.


iShares MSCI India ETF INDA


This fund provides exposure to large and mid-sized Indian equities. The Indian economy has been gaining a lot of traction lately, as growing optimism in the country’s Prime Minister drives the stock market rally and recovers from the blow served due to demonetization.


It has AUM of $5.01 billion and charges a fee of 71 basis points a year. Financials, Computer-Software, and Consumer Discretionary are the top three sectors of the fund, with 23.33, 13.60% and 12.76% allocation, respectively (as of June 26, 2017). Housing Development Finance Co, Reliance Industries Ltd and Infosys Ltd are the top three holdings of the fund, with 9.29%, 6.95% and 6.47% allocation, respectively (as of June 26, 2017). The fund has returned 19.67% year to date and 15.89% in the last one year (as of June 27, 2017). INDA currently has a Zacks ETF Rank 2 with a Medium risk outlook (read: Why India ETFs are Soaring in 2017).


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ISHARS-EAFE (EFA): ETF Research Reports
 
ISHARS-M INDIA (INDA): ETF Research Reports
 
ISHARS-EMU IDX (EZU): ETF Research Reports
 
ISHRS-MSCI ACWX (ACWX): ETF Research Reports
 
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