There’s big trouble in the birthplace of western civilization. I’m speaking here of the rioting in Greece over the government’s proposed austerity measures, and of course, that country’s wider fiscal fiasco. The Greek debt situation is a total mess, and the nation’s leaders are scrambling desperately to restructure the government and to attract some capital from fellow European Union nations.
Prime Minister Papandreou is attempting to get opposition parties to agree on the austerity measures demanded by EU nations and the International Monetary Fund as the price of a new bailout. And while many analysts suspect a bailout deal will be worked out to avert immediate disaster, many others don’t see how Greece’s situation avoids default in the long run.
This ongoing Greek tragedy has put some serious pressure on European equity and bond markets, as well as U.S. equity markets. Wall Street doesn’t like riots, so it is no surprise that the social unrest unfolding in Athens has plenty of investors spooked. Now, there are two sides to the Europe issue from an investment point of view. Bulls can look at the situation as an opportunity to get in on a beaten-up sector, while bears see the recent decline in the space as a the beginning of a wider sell off. Fortunately, there are exchange-traded funds (ETFs) that allow both camps to easily express themselves through ETF investing.
If you want to take a long position in Europe, there’s no better fund than the Vanguard MSCI European ETF (NYSE: VGK). This fund seeks to track the performance of the MSCI Europe Index which contains primarily large- and mid-cap companies in developed European equity markets such as Austria, France, Germany, Spain, the United Kingdom, and yes, even Greece.
The top five holdings in this fund are Royal Dutch Shell PLC (NYSE: RDS.A), Nestle SA, HSBC Holdings PLC (NYSE: HBC), Vodafone Group PLC (NYSE: VOD) and BP PLC (NYSE: BP). Basically, you’re getting exposure to the best stocks in Europe, and with 483 total stocks currently held in VGK, you also get exposure to the whole gamut of European firms.
Now, if you suspect that Greece’s fiscal issues will bring down the entire European market, then an aggressive way to trade is the ProShares UltraShort MSCI Europe (NYSE: EPV). This is a leveraged fund designed to deliver twice the inverse performance of the MSCI Europe index. So, if the benchmark European index falls 2%, then EPV is designed to rise 4%.
As you can see by the chart of VGK, European stocks have been in a protracted decline since the beginning of May. Conversely, EPV shares have been on the march higher since May, and the leveraged inverse fund now trades above its short-term, 50-day moving average. So, will European stocks rebound, or will a failure to work out Greece’s debt issues send the sector reeling? Whichever scenario plays out, investors have two excellent ETFs to take advantage of the outcome.
As of this writing, Jim Woods held no positions in the funds mentioned in this article.
