Super Mario saves the day!
A heaping helping of European Central Bank quantitative easing, courtesy of Mario Draghi, has had its intended effect across the eurozone, sending European stocks and broad-based Europe ETFs to all-time highs.
Or, if you’d prefer a European reference, mad cow disease was running rampant.
While a possible Greek eurozone exit still looms over Europe, there’s plenty to be optimistic about. There are no signs that the ECB plans to pull the brakes on its market-friendly stimulus efforts, and the euro continues to trade weakly against the dollar.
So at least for now, broadly speaking, European stocks look awfully good. They sure look better than American stocks.
The best way to make a wide bet on the region? A Europe ETF or two. And to help you decide — after all, there are several dozen Europe ETFs on the market — we’ll look at five funds that will you get you invested in the continent, and even do so on the cheap.
Cheap Europe ETFs: Vanguard FTSE Europe ETF (VGK)
Expense Ratio: 0.12%, or $12 for every $10,000 invested
Most discussions about cheap funds begin and end with Vanguard, and for good reason: Vanguard offers dirt-cheap funds.
The Vanguard FTSE Europe ETF (NYSEARCA:VGK), at 0.12% in expenses, is the cheapest Europe ETF on the market (albeit by just a pair of basis points). And it’s also about as straightforward and plain-Jane a way to invest in Europe as you could want.
VGK holds more than 500 stocks, with its biggest weightings going to the United Kingdom (32%), France (14%), Switzerland (14%) and Germany (14%). While it does hold a few smaller companies, the average market cap of companies in the VGK stands at nearly $50 billion. And the top holdings are names that anyone can recognize — even on this side of the pond. Nestle SA (OTCMKTS:NSRGY). Novartis AG (ADR) (NYSE:NVS). Royal Dutch Shell plc (ADR) (NYSE:RDS.A, NYSE:RDS.B).
That portfolio produces quite a sizable dividend yield, at 3.3%. And the turnover rate is just 6.9%, meaning that out of every 100 holdings in this Europe ETF, only seven or so change hands every year.
Translation: This is a big, nice-yielding, buy-and-hold-forever way to invest in European stocks.
Cheap Europe ETFs: iShares MSCI Europe Minimum Volatility ETF (EUMV)
Expense Ratio: 0.25%
Europe has been a relative roller coaster ride compared to the U.S. markets. Yes, Europe is beating the U.S. markets this year, but that follows an up-and-down-but-mostly-down 2014 that saw broader European stocks (as measured by VGK) dip some 10%.
And while the future does look bright for Europe, the flip side of the coin is that a pullback in stimulus would likely be painful for the eurozone region.
If you don’t think Europe’s recovery will look like a smooth line higher, an iShares trust launched in June of last year is intended to make the ride a little less bumpy.
The iShares MSCI Europe Minimum Volatility ETF (NYSEARCA:EUMV) is one of several volatility-minded ETFs that have launched in the past year. EUMV specifically seeks out European stocks that have lower volatility characteristics. Like VGK, it’s heavily invested in the U.K., Switzerland, Germany and France. However, EUMV has higher concentrations of healthcare, consumer staples and telecom stocks than the VGK, and slightly less weight in financials.
Since late 2009, the MSCI Europe Minimum Volatility Index that EUMV tracks has provided greater returns than the broader MSCI Europe Index, “with 20% less risk.” Of course, the actual ETF has been trading for less than a year, but it has provided steadier price action and better returns (-3.5% to -8.3%) than VGK since inception.
Cheap Europe ETFs: WisdomTree Europe Hedged Equity Fund (HEDJ)
Expense Ratio: 0.58%
The WisdomTree Europe Hedged Equity Fund (NYSEARCA:HEDJ) is a turbocharged way to bet on European stocks if you believe in a one-two punch of both improved European stock performance and a lower euro. Which is exactly what we’re experiencing right now.
“The Index and Fund are designed to have higher returns than an equivalent non-currency hedged investment when the value of the U.S. dollar is increasing relative to the value of the euro, and lower returns when the U.S. dollar declines against the euro.”
HEDJ accomplishes this by investing in European stocks that derive heavy portions of their revenue from exports, especially to the U.S. Because naturally, if they’re making a lot of sales in U.S. dollars, that looks good when reporting financials in lower-valued euros.
You’d be unsurprised, then, to find out that top holdings include companies like Anheuser-Busch InBev SA (ADR) (NYSE:BUD), which as we all know, sells a lot of Bud here (for better or worse). Other familiar names include Daimler AG (OTCMKTS:DDAIF), which produces Mercedes-Benz, and pharma giant Bayer AG (ADR) (OTCMKTS:BAYRY).
The strategy is killing it in 2015, with HEDJ up 22% to VGK’s 6% to date, but just remember: A stronger euro and weaker corporate performances can cut you a lot more the other way.
Cheap Europe ETFs: iShares MSCI Germany Index Fund (ETF) (EWG)
Expense Ratio: 0.49%
This ETF is the narrowest way to play the continent, but it’s still a darn good Europe ETF to tuck away. After all, Germany is the biggest of the eurozone’s economies, and by just about every measure, it’s also the most secure.
Besides, you can thank Germany in large part for Europe’s pick-up over the past few months. German GDP for Q4 2014 expanded 0.7% — more than twice what was expected — causing one economist to call the activity a “thunderbolt.”
To harness this electric European economy on the cheap, you can buy into the iShares MSCI Germany Index Fund (ETF) (NYSEARCA:EWG), which is a fairly concentrated but sturdy collection of German large caps. The aforementioned Bayer and Daimler, along with chemical company BASF SE (ADR) (OTCMKTS:BASFY), tech firm Siemens AG (ADR) (OTCMKTS:SIEGY) and insurer/asset manager Allianz SE (ADR) (OTCMKTS:AZSEY) make up almost 40% of EWG’s weight.
Cheap Europe ETFs: SPDR S&P Emerging Europe (ETF) (GUR)
The SPDR S&P Emerging Europe (ETF) (NYSEARCA:GUR) is not, in fact, a play on European stocks — at least not the European stocks we’ve been talking about so far.
GUR focuses on central and eastern Europe, holding companies from non-eurozone countries such as Turkey, the Czech Republic, Poland and Hungary. (Oddly enough, it even has a couple of American and U.K. holdings). But the biggest weighting? Russia, which while on the continent of Asia is nonetheless frequently lumped in as part of the European “region.”
So, this isn’t a direct play on a cheaper euro — in fact, in many respects, it’s the Swiss franc you need to eye if you’re invested in eastern Europe — or ECB stimulus. GUR is, however, a commodity play in many respects, with the fund overloaded in energy (30%) – top holdings are Russia’s Gazprom OAO (ADR) (OTCMKTS:OGZPY) and Lukoil (ADR) (OTCMKTS:LUKOY) — and dedicating another 11% to materials. Naturally, GUR’s chart largely follows oil prices down.
This is by far the most volatile of the five funds, and certainly the most battered. But for those looking for exposure to “the other side” of Europe, GUR is one of just a handful of ways, and despite its heavy Russian weight, it’s among the most diversified.