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Risks Linger for Europe ETFs


European stocks and exchange traded funds have rebounded as the Eurozone climbs out of a debt induced financial crisis. However, investors shouldn’t get too excited as European Central Bank President Mario Draghi warns about persistent hurdles in the economy.

The Vanguard FTSE Europe ETF (VGK) slipped 0.3% Thursday. The ETF gained 22.5% over the past year.

Draghi stated that the Eurozone is still fighting with the debt crisis, even after some peripheral states return to the debt market and European assets rallied, reports Namitha Jagadeesh for Bloomberg.

“It’s a recovery that’s gone from being based exclusively on export growth” to one that is “very gradually extending into domestic demand,” Draghi said. “But it’s still premature to declare any victory.”

On Thursday, the ECB announced that it will keep the main refinancing rate at 0.25%.

“The Governing Council strongly emphasizes that it will maintain an accommodative stance of monetary policy for as long as necessary,” Draghi said in a statement.

The ECB is maintaining its accommodative stance in light of ongoing problems in the Eurozone economy.

“Unemployment remains high, austerity measures are still sapping growth for the likes of Italy and Greece, while the French government’s inability to spur growth are all reasons to be wary of the euro area this year,” Ishaq Siddiqi, a market strategist at ETX Capital, wrote in a note.

Popular diversified Europe ETFs, such as the VGK and the iShares Europe ETF (IEV) , feature large combined allocations to the U.K. and Switzerland, which diminish some of the risks associated with investing in the Eurozone.

On the other hand, the SPDR EURO STOXX 50 Fund (FEZ) excludes the U.K. and Switzerland in favor of a heavy tilt toward Eurozone countries, France, Germany, Italy and Spain.

Vanguard FTSE Europe ETF

For more information on Europe, visit our Europe category.