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Top Ranked European ETF in Focus: IEV

Zacks Equity Research

The European economy is gradually witnessing broad-based growth. Thanks to reduced debt worries, strong growth in some of the key member nations and solid data, the European economy nicely rebounded from the final quarter of last year.

Euro zone business activity during the second quarter has seen a solid start – the fastest in almost three years (read: Hot Euro Zone ETFs for Summer).

This is especially true as the Markit’s Composite Purchasing Managers Index for the Euro zone rose to 54.0 in April from 53.1 in March. Business activity is picking up even in the weaker Euro zone nations such as Spain and Ireland. Growth in these two nations is the fastest in at least the last six years.

Moreover, thanks to a boost in new orders, the index for the Euro zone service industry rose to a 34-month high of 53.1 in April from 52.2 in March. The most important thing to be noted is that the services business activity is showing growth across the board – France, Germany, Italy, Ireland and Spain all grew for the first time since May 2011 (also see Direxion Debuts Leveraged Europe ETFs).

Adding to the joy, the 28-nation European Union (EU) is expected to expand by 1.6%, as per European officials. If so, this would mark a sharp uptick after just 0.1% growth in 2013.

For 2015, the economy is expected to expand at an even higher rate of 2%. However, investors should also note that rising geo-political tensions with Russia, a sustained period of low inflation and lack of structural reform could still impact the economy.

Though at a near record high, unemployment across the 28-nation EU fell to 10.5% in March from 10.9% in the year-ago month. Unemployment, however, remained stubbornly stable with February levels. However, unemployment is expected to drop to 10.1% in 2015, according to EU officials.

Solid business, rising exports, stronger currency and falling unemployment make for a rewarding combination. A look now at European Equity ETFs could be a good idea to capture this surge, especially so if it is backed by a solid Zacks ETF Rank.

About the Zacks ETF Rank

The Zacks ETF Rank provides a recommendation for the ETF in the context of our outlook for the underlying industry, sector, style box or asset class (Read: Zacks ETF Rank Guide).
The aim of our models is to select the best ETFs within each risk category. We assign each ETF one of the five ranks within each risk bucket. Thus, the Zacks ETF Rank reflects the expected return of an ETF relative to other products with a similar level of risk.
For investors seeking to apply this methodology to their portfolio in the European Equity ETF space, we have taken a closer look at the buy ranked iShares Europe ETF (IEV). This ETF has a Zacks ETF Rank of 2 or ‘Buy’ and is detailed below (see all European Equity ETF here  ).
IEV in Focus

Launched in July 2000, IEV is a passively managed fund designed to deliver the return of the European equity asset class. The fund tracks the S&P Europe 350 Index and has amassed $3.4 billion since its inception.

IEV adds a well-diversified flavor to a portfolio and is exposed to companies from the entire spectrum of market capitalization levels, but with a heavy bias to large cap stocks.

From an individual holdings point of view, the assets of the fund are very well spread out. It does a great job in holding just a mere 19.4% in its top 10 holdings considering the fact that it holds 356 securities in total. Nestle, Novartis and Roche Holdings are the top three holdings of the fund, each having an allocation between 2.2% and 2.8%.

As far as sector holdings are concerned, it relies heavily on Financials, followed by Consumer Staples, Healthcare, Industrials and Energy, each with double-digit exposure. All these sectors combined account for more than half of the fund assets.

As far as geographic reach goes, the fund allocates more towards stronger economies like the U.K. (26.93%), France (15.31%), Switzerland (14.26%) and Germany (13.13%) (read: Time to Bet on the British ETF?).

Bottom Line

The fund has returned 21.3% in the past one year and has gained 4.1% in the year-to-date time frame. The fund has a decent dividend yield of 2.23% though it charges a slightly higher fee of 60 basis points. Still, thanks to its top rank and the promising trends in Europe, IEV could definitely be a European fund to keep an eye on for the future.

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Zacks Investment Research

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