Tag Archives: italy

Revisiting Eurozone ETFs As Economic Growth Falters

After a solid start to 2015, growth in the 19-member Euro zone economy lost momentum due to the Greek debt crisis and deterioration in many emerging market economies as commodities saw a slump and China witnessed a turmoil. The economy grew just 0.3% in the second quarter, down from a two-year record growth of 0.4% in the first quarter and well below the market expectation. This suggests that the Euro zone continues to lag recovery in the U.S., which recorded 2.3% growth in the same period. France and Italy – representing 40% of the currency bloc’s growth – were the major setbacks to the region’s growth in the last quarter. This is especially true, as France recorded zero growth in the second quarter after 0.7% in the first and Italy’s growth slowed to 0.2% from 0.3%. On the positive side, Spain once again turned out to be the outperformer with its quarterly growth increasing from 0.9% in the first quarter to 1% in the second. This was the highest growth rate among the Euro zone nations. Growth in Germany accelerated to 0.4% from 0.3%, while Greece unexpectedly grew 3.1% in the last quarter from 0.1% in the first quarter. Outlook Remains Bright It can be said that the Euro zone has shown strong resilience in a tough environment, which was disturbed by Greece, China and the commodity turmoil. The outlook for the region remains solid heading into the second half of the year given the numerous economic tailwinds that the Euro zone is enjoying. These include ultra-cheap money flows, a boost to liquidity from the European Central Bank’s (ECB) quantitative easing program, a weaker euro and lower oil prices. Improving economic and business activity as well as growing consumer confidence is fueling growth in the 19-member economy. The Euro zone successfully emerged out of the four straight months of deflationary spiral in April and inflation is above the zero level. Notably, annual inflation was 0.2% in July. Further, unemployment across the Euro zone has been falling and remained steady at a three-year low of 11.1% as of June. Given several monetary tools in place, the Euro zone is expected to show strength in the coming months providing a boost to the stocks and ETFs in the region. As a result, we have taken a closer look at some of the ETFs that have the largest exposure to the Euro zone economies. These funds have generated decent returns so far in the year and could continue to do so. iShares MSCI EMU Index Fund (NYSEARCA: EZU ) This product provides exposure to the EMU member countries (those European Union members that use the Euro as currency) by tracking the MSCI EMU index. EZU is one of the most popular ETFs in the broader European space with AUM of nearly $10.9 billion and average daily volume of roughly 6.5 million shares. It charges investors 0.48% in annual fees. The fund holds about 243 securities in its basket with none holding more than 3.15% share. The ETF is a large cap centric fund as about 82% of the portfolio is concentrated on this market cap level. The product has a definite tilt toward financials at 24%, followed by consumer discretionary (14.4%), industrials (13.1%) and consumer staples (10.5%). From a country look, France and Germany take the largest share in the basket with 32.4% and 29.2%, respectively, while Spain, the Netherlands and Italy round off the top five. The fund has returned about 7.1% so far this year and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook. SPDR EURO STOXX 50 ETF (NYSEARCA: FEZ ) This fund follows EURO STOXX 50 Index, which measures the performance of some of the largest companies across the components of the 20 EURO STOXX Supersector Indexes. The fund appears rich with AUM of nearly $4.7 billion, and average daily volume of more than 2.5 million shares. Expense ratio came in at 0.29%. Holding 53 securities in its basket, the product is pretty well spread out across components with no firm making up for more than 5.09% of assets. The ETF is skewed toward financials, as it takes about more than one-fourth of the total assets, while the other sectors receive modest exposure. In terms of country allocation, France and Germany are leading with 36.2% and 30.6% share, respectively, followed by Spain (12.7%), Italy (8.0%), the Netherlands (7.6%), Belgium (3.7%) and Finland (1%). The fund is up nearly 5.6% in the year-to-date time frame and has a Zacks ETF Rank of 3 with a Medium risk outlook. SPDR STOXX Europe 50 ETF (NYSEARCA: FEU ) This ETF is quite similar to FEZ having amassed $280 million in its asset base and trading in volume of less than 74,000 shares per day. It charges 29 bps in annual fees and holds 56 stocks in its basket. While the fund tracks the same index, it is slightly different from FEZ in terms of sector and country holdings. Here, financials and health care take the top two spots in terms of sectors with over 24% share each while consumer staples and energy round off the top four with double-digit exposure each. Country weights for the top three are United Kingdom (35.4%), Switzerland (23.1%) and Germany (14.7%). The product is up 6.1% so far this year and has a Zacks ETF Rank of 3 with a Medium risk outlook. iShares Currency Hedged MSCI EMU ETF (NYSEARCA: HEZU ) For investors looking to manage currency risk while remaining invested in the Euro zone stocks, HEZU might be a good option. The fund follows the MSCI EMU 100% USD Hedged Index and is a play on the popular unhedged fund ( EZU ) with a hedge to strip out the euro currency exposure. The fund holds 263 well-diversified securities in its basket dominated by financials (24.4%) and followed by consumer discretionary (14.7%), industrials (13.3%) and consumer staples (10.7%). The ETF has amassed $1.8 billion in its asset base since its debut a year ago and trades in good volumes of more than 941,000 shares a day. The fund charges 50 bps in annual fees from investors and has delivered impressive returns of over 15% so far this year. It has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating. Bottom Line Given the encouraging trend, Euro zone will likely get a boost in the coming months. So investors could jump into this space and could ride out the strength with any of the above-mentioned ETFs. Original Post

Spain ETF Surges After Brightened GDP Forecast

Thanks to ultra-loose monetary policy, Europe has been one of the top investment destinations this year. While Germany certainly has got an upper hand and is among the most favored, the PIIGS (Portugal, Ireland, Italy, Greece and Spain) group of nations is also seeing a surge in interest due to the faster-than-expected recovery in the Euro zone. In fact, Spain’s economy grew nearly 4% in the first half of 2015 – brightening the chances of the GDP returning to the pre-crisis level by the end of 2016, per Economy Minister Luis de Guindos. The return to Spain’s growth path has been the brainchild of Germany. Spain has sincerely been following the austerity measures outlined by Germany to restore its economy back to life. Spain’s government has lifted its economic forecast and now expects the Spanish economy to grow by 3.3% this year , up from its earlier forecast of 3.1% growth. It expects the economy to expand by 3% in 2016, ahead of the 2.7% growth predicted by The Bank of Spain. The Bank of Spain currently expects its economy to expand by 3.1% in 2015. Further, the government expects unemployment to fall below 20% next year, and to 15.5% by 2017. ETF Impact Given these optimistic GDP predictions, Spain ETFs have seen a surge in interest lately. In fact, iShares MSCI Spain Capped ETF (NYSEARCA: EWP ) has accumulated $15.51 million in assets under management since July 1. Moreover, all the three Spain ETFs have clocked gains in excess of 6% in the last one week. Below we have highlighted three Spain ETFs in details. These products might continue to see gains fueled by the bullish GDP forecasts. EWP in Focus The fund tracks the MSCI Spain 25/50 index to provide exposure to 29 large and mid-sized companies in Spain. The product is quite concentrated in its top three holdings with roughly 45% exposure. Sector-wise, Financials dominates the fund with a little less than half of the fund assets, followed by double-digit allocation to Telecom, Utilities and Industrials. The fund is quite popular with $1.8 billion in assets and an average trading volume of 1.5 million shares. EWP has a 30-Day SEC Yield and charges 47 basis points as fees. The fund has returned 6.43% in the past one week. SPDR MSCI Spain Quality Mix ETF (NYSEARCA: QESP ) The fund tracks the performance of companies domiciled in Spain and aims to represent the performance of a combination of three factors – value, quality and low volatility. The top two stocks – Banco Santander and Telefonica – dominate the fund with double-digit exposure. Financials occupies the bulk with more than one-third allocation, followed by Utilities and Industrials. The fund has gained 6.9% in the past one week and charges 30 basis points as fees. Currency Hedged MSCI Spain ETF (NYSEARCA: HEWP ) Launched recently, the fund seeks to track the MSCI Spain 25/50 100% Hedged to USD Index to provide exposure to large- and mid-capitalization Spanish equities while mitigating exposure to fluctuations between the value of the euro and the U.S. dollar. With this focus, the fund holds EWP ETF in its portfolio and also holds EUR/USD forward contracts. HEWP manages a small asset base of $2.5 million and charges 51 basis points as fees. Original Post

EWI Provides A Concentrated Play In Europe

Summary EWI provides access to Europe with less exposure to Greece-induced volatility, and is one of the few pure plays on Italy. OECD has raised its forecast for Italy and for Euro area as a whole for 2015 and 2015. The concentrated portfolio is anchored by a stable utility and financials at or near new highs. The recent pull-back in European markets due to Greek debt headlines presents an attractive entry point into the renaissance in the Euro area. Introduction The European Central Bank stepped up with bolder-than-expected monetary easing recently, which had the additional benefit of weakening the Euro currency. These twin factors led the OECD to raise their GDP forecast for Europe for 2015 and 2016. Ahead of this OECD revisions, these twin factors also led to a strong rally in European markets in the first quarter of 2014. Then the Greek debt drama heated up, and European indexes cooled down, to the tune of about 10 percent, which could present a good buying opportunity. Hence, we analyze single-country ETF performance to see how market factors have affected single-factor ETF rankings. OECD Ups Italy Forecasts The OECD has upped its forecast for Italy to +0.6 percent for 2015 and +1.5% in 2016 supported by rising exports and increased infrastructure spending. Though the Dax index dropped more than 10% since its early April high, EWI has climbed approximately 3 percent over the same time period (see Figure 1). (click to enlarge) Figure 1: The iShares MSCI Italy Capped ETF ( EWI) has moved up since mid-April even as major European indexes such as the DAX have consolidated in response to Greek debt fears (chart courtesy ETFmeter.com via StockCharts.com). The EWI Portfolio is Concentrated The EWI portfolio has just 26 stocks, but almost 23% is in two major holdings: ENI (NYSE: E ) (~11.9%) and Intesa Sanpaolo ( OTCPK:ISNPY ) (~11.3%). ENI is a utility that anchors the portfolio with relatively stable prices and about 6.6% dividend. Intesa Sanpaolo is near new five-year highs. Nearly two thirds of the portfolio is devoted to financials, consumer discretionary, telecoms and industrials, likely to benefit from the improving economy. The relative strength shown by the Italian markets has moved it to the of the more widely traded country ETFs (see Figure 2). As EWI digs into overhead resistance, its long-term technical picture is positive, has the strongest medium-term trend strength, and is experiencing more short-term buying pressure than most of the other ETFs in the table. Therefore, combining the technical picture on three time frames, EWI paints a positive picture. (click to enlarge) Figure 2: We rank the widely traded country ETFs on short-term, medium-term and long-term basis (data courtesy ETFmeter.com). Portfolio Positioning Investors looking to benefit from the renaissance in Europe should analyze EWI because of a gradual recovery in Italy and faster growth in the Euro area. The European Central Bank will determine the eventual success of this suggestion since the depth and duration of its quantitative easing policies will affect the economic performance supporting EWI. Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: The primary focus on the article is on the EWI ETF though others are mentioned in a table.