Recently, one of the renowned ETF issuers, First Trust, introduced a product in the U.S. targeting Europe. The launched product – First Trust RiverFront Dynamic Europe ETF (
RFEU in Focus
The fund provides exposure to European companies through investments in common stock, depositary receipts and real estate investment trusts, and forward foreign currency exchange contracts. It is an actively managed fund and does not track any index. The fund employs a dynamic currency hedging strategy by using forward foreign currency exchange contracts and currency spot transactions to hedge the fund’s currency exposure either partially or fully (read:
RiverFront is the sub-advisor to the fund and is responsible for managing the portfolio. The fund advisor will perform top-down analysis of liquidity, investability, and data availability to narrow the investable universe down to roughly fifty specific country and regional geographic markets. Then on the basis of both quantitative and qualitative factors stocks are selected.
RFEU is a well diversified fund, where Anheuser-Busch InBev takes the top spot with 4.15% weight, followed by Unilever, and Siemens with over 3% exposure each. The rest of the stocks don’t account for more than 2.6% of the portfolio individually. In total, the fund holds about 296 stocks.
Sector-wise, Consumer Staples gets the highest exposure with 18.2% of the portfolio. Industrials, Consumer Discretionary, Financials and Health Care also get double-digit exposure in the basket.
As far as country exposure goes, France (21.1%) gets the top priority while Germany (19.7%), United Kingdom (17.9%) and Spain (10.3%) take up the next three positions. The fund charges about 83 bps in fees.
As per
How Does it Fit in a Portfolio?
The fund is a good choice for investors seeking capital appreciation through exposure to European stocks. Additionally, the ETF will also provide diversification benefits to investors.
Meanwhile, in March, the ECB came up with a more intensified economic stimulus and opted for multiple rate cuts and the expansion of its quantitative easing program to boost the economy. Monthly asset purchases were raised to EUR 80 billion from 60 billion previously (read:
So, the launch of the new ETF targeting this market seems well timed.
ETF Competition
The newly launched ETF will have to face competition from Europe-focused ETFs like Vanguard FTSE Europe ETF (
iShares MSCI Eurozone ETF (
Apart from these, RFEU could also face competition from iShares Europe ETF (
Thus, the newly launched fund is costlier than the popular ETFs in the space. So, to garner investors’ money, the fund needs to sell its actively managed strategy, and hope for some outperformance over traditional benchmarks as well.
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