7 Reasons to Bet on These European ETFs Now

While the U.S. market has been grabbing attention on the Trump-induced rally, investors may be overlooking other potential winners. In this light, we would like to note that European stocks and ETFs could prove to be compelling bets (read: 5 Market Beating Broad International ETFs of 2016).

At least, Goldman Sachs gives such cues. As per the investment bank, Europe equities are better choices than their U.S. cousins this year. Deutsche Bank too raised its projection for the pan-European Stoxx 600 from 6% to 9% for the year.

And why not? After all, the U.S. economy has been on the path of monetary policy tightening while the economies across the pond are still practicing super-easy monetary policies (read: Sole Fed Hike of 2016 Put These ETFs in Focus).

In December, the European Central Bank announced that it would lower its bond buying program to 60 billion euros a month from 80 billion from April, but extended the program to December 2017, or beyond, should the need arise (read:  ECB Trims But Extends QE: ETF Winners & Losers).

In fact, Goldman sees the U.S. dollar to come into parity with euro during 2017 thanks to the policy differential. The bank doesn’t expect policy tightening from ECB before 2019 at the earliest. Such accommodative policies should bolster European growth and earnings ahead.

The Euro area economy grew 0.3% sequentially in Q3 of 2016, the same as in the prior period and in line with earlier estimates. The World Bank expects the Euro zone advancing 1.5% this year considering that uncertainty regarding Brexit may eat away some growth prospect.

Also, Euro-area manufacturing rose at the fastest rate since April 2011 in December, again confirming the regained momentum. IHS Markit manufacturing Purchasing Managers’ Index jumped to 54.9 in December from 53.7 in November.

If this was not enough, Euro zone inflation was 1.1% in December, marking the highest inflation level since September 2013. Rebounding energy prices mainly boosted inflation. Rising inflation also gives cues of the effectiveness of the ECB’s QE policy and wards off deflationary concerns. Investors should note that ECB’s target is to achieve a 2% goal in inflation.

The business and consumer sentiment was at about a six-year high to close out the year in the European Union. Its economic sentiment indicator rose 1.2 points to 107.8, its highest level since March 2011 and was ahead of a reading of 106.8.

Agreed, many investors are of the view that there are plenty of political risks lined up for the Euro zone this year, including elections in the Netherlands, France and Germany. But analysts like Credit Suisse see the election risk as “overstated”.

Many analysts including Bank of America Merrill Lynch are of view that European earnings are on their way to log “their best years since the financial crisis” backed by improving growth, falling currencies and firming commodity prices. With this, BoA upped its forecast for 2017 European earnings by 11%. For 2018, BoA is projecting an 8% rise in earnings. And if the earnings environment strengthens, the need for further capital in the financial sector should not be much in the region, as per analysts.

In such a scenario, investors can definitely play Europe ETFs. Below we highlight a few such options, P/E ratios of which are lower than or almost in line with SPDR S&P 500 ETF’s (SPY) 17.73 times (see all European ETFs here). We emphasize currency-hedged ETFs given the stronger greenback:

WisdomTree Germany Hedged Equity Fund DXGE – P/E 11.74

The fund provides a currency-hedged exposure to the German equity markets. It yields about 3.36% annually and charges about 48 bps in fees.

WisdomTree Europe Hedged SmallCap Equity Fund EUSC – P/E 12.38

The fund is designed to provide exposure to the small-cap dividend paying stocks of the European equity markets with no currency translation risk. It yields about 2.55% annually and charges 58 bps in fees. Italy, France, Germany, Finland and Spain get a double-digit exposure in the fund.

MSCI Eurozone High Dividend Yield Hedged Equity ETF HDEZ – P/E 12.56

The fund tends to track the performance of equity securities based in the countries belonging to the European Monetary Union, while seeks to mitigate exposure to fluctuations between the value of the U.S. dollar and the euro. It yields about 3.61% annually while charging 45 bps in fees. Germany, Finland, France and Italy are the top four regions.

WisdomTree Europe Quality Dividend Growth ETF EUDG – P/E 17.85

The fund measures the performance of dividend-paying common stocks with growth characteristics selected from the WisdomTree DEFA Index. It charges 58 bps in fees and yields about 2.47% annually.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
WISDMTR-EUR HSC (EUSC): ETF Research Reports
 
WISDMTR-GER HEF (DXGE): ETF Research Reports
 
WISTR-EUR QD (EUDG): ETF Research Reports
 
DEUTS-XT M EHDY (HDEZ): ETF Research Reports
 
To read this article on Zacks.com click here.
 
Zacks Investment Research
 
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report