Lately, though, the tide is shifting: analysts have turned a corner and feel upbeat once again about Europe’s prospects. Why?
- European shares rose to their highest close in a year on Monday, and European banks are up 176 percent since March 9
- Investors are coming out: inflows surpassed outflows by $2.1 billion in the last four weeks; U.S. flows are negative
- Analysts are forecasting a 25 percent increase in earnings in 2010 for Europe, compared with a 23 percent increase in the United States
- Global equity ETFs saw more than $5 billion in inflows in the third quarter compared to $1.3 billion in domestic equity ETFs
- Interest rates are expected to stay low in the hopes that they will continue to fuel the rally
- Gains by U.S. investors in overseas markets have enjoyed a “dollar kicker” when assets are repatriated to U.S. dollars; if it weren’t for the positive currency translation, developed overseas benchmarks would barely be outperforming those of the U.S.
Investors looking to play Europe’s recovery can grab broad exposure to the countries that make up the region via these exchange-traded funds (ETFs), rather than trying to guess which one will outperform in the long run:
iShares MSCI EMU Index: France, 30 percent; Germany, 24 percent; Spain, 14.1 percent; Italy, 10.8 percent
SPDR DJ Euro Stoxx 50: France, 36 percent; Germany, 26 percent; Spain, 16.1 percent
Both ETFs are up about 95% since the March 9 low, compared with nearly 61 percent for the S&P 500
FEZ and EZU are more heavily weighted in financials and energy than the S&P
Tom Lydon’s clients own shares of EZU.
Tom Lydon is the editor of ETF Trends and author of iMoney: Profitable ETF Strategies for Every Investor.