Europe Hedged Equity Fund (NYSEARCA:HEDJ) has added over 20% so far this year (as of April 6, 2015) bolstered by the dual dose of ultra-easy monetary policies and currency hedging technique.
Needless to say, the initiation of the QE program and negative interest rates in the Euro zone devalued the European currencies massively to the greenback. This was truer as the Fed is considering policy tightening sometime this year. This has in turn bolstered investors’ interest in currency-hedged investments across the pond.
However, this does not mean that un-hedged European versions are reeling under pressure. In fact, regular European ETFs held up strongly this year. The largest European ETF Vanguard FTSE Europe ETF (NYSEARCA:VGK) is up 6.4% in the YTD frame compared to the just 1.1% gain in SPDR S&P 500 ETF (NYSEARCA:SPY).
And why wouldn’t it be? After all, German business morale grew for the five straight months to touch an eight-month high in March. French business morale reached a three-year high last month while that in Italy was at a four-year high indicating strengthening firms’ sentiments on the top three countries of the Euro zone.
Confidence was more solid among consumers as the index recently hit a 13-year peak for Germany, a five-year high for France and a seven-year high for Italy. Undoubtedly, the bourses of these countries and the related ETFs have held their own this year. But there are some other ETFs which deserve mention apart from the top-tier trio as the former country ETFs displayed strong trend lately.
So for investors seeking cheap foreign plays that are doing extraordinarily, a closer look at any of the following three ETFs could be an intriguing idea. These funds managed to stay profitable although these are not currency-hedged versions.
While most headlines were snatched by big names like Germany, France and Italy, one overlooked nation – Austria – rewarded investors with solid returns this year. Its relatively low unemployment rate compared to the average Euro zone level, a revival of the continent and signs of fast recovery in its major trading partners were behind smart returns.
Austria’s export-to-GDP ratio stood at 57.44% in 2013, per Quandl. Investors should note that countries with heavy export exposure benefit from a sliding currency. Thus, a weaker euro proved a boon for the Austrian economy.
Probably this was the reason that the only pure play on this market – iShares MSCI Austria Capped ETF (EWO) – added about 8% YTD, 1.9% in the last one month and 3.4% in the last one week (as of April 6, 2015). Notably, a 3.67% yield delivered by the ETF is also an added attraction for investors. EWO has a P/E (ttm) of 13 times, lower than 17 times offered by VGK.
Spanish stocks are also on fire this year. The country’s GDP grew 0.80% in Q4 of 2014 underscoring a seven-year best pace. The economy is expected to log 2.5% expansion in Q1 and is well on its way to achieve a 2.8% growth target this year.
The Bank of Spain further indicated that unemployment is likely to decline to 22.2% by the end of 2015 from the 26% mark crossed two years ago. iShares MSCI Spain Capped ETF (NYSEARCA:EWP) playing with large and mid-cap Spanish stocks cashed in on this trend effectively.
EWP, with a P/E (ttm) ratio of 14, was up 4.6% in the YTD frame, 7.5% in the last one month and 3.4% in the last one week. This fund is also a high-dividend one yielding 4.56% annually (as of April 6, 2015). Investors should note that another Spain-oriented product, SPDR MSCI Spain Quality Mix ETF (QESP), got mileage out of the above-said trend, having gained 3.1% in the last one week.
The Danish central bank may be the most talked-about financial institution this year after ECB, having cut its main deposit rate twice within just four days. After cutting the rate to -0.2% on January 19, the bank reduced it to -0.35% on January 22.
This was done to devalue its currency krone against a multi-year low euro and maintain its export competitiveness. Notably, exports accounted for about 54% of Danish GDP in 2013.
Danish consumer confidence hit a nine-year high in February. To add to this, the country’s central bank upgraded the country’s growth outlook in mid March. Denmark’s GDP is now expected to expand by 2.0% this year, suggesting a 0.3% rise above the bank’s December projections. Persistent decline in oil prices, ultra-low interest rates and depreciation in effective krone rate led the bank to make this revision.
Denmark-based ETF iShares MSCI Denmark Capped Investable Market Index Fund (EDEN) was up about 16% (YTD), 8.7% in the last one month and 2.4% in the last one week (as of April 6, 2015).
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