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Euro Zone PMI at 5-Month Low: ETFs in Focus

The Euro zone has been gaining a lot of traction lately, owing to speedy growth and high business confidence. However, the region failed to sustain its shine in June 2017, primarily because of a slowdown in the services sector growth.


IHS Markit's Flash Composite Purchasing Managers Index (PMI) for the Euro zone fell to 55.7 in June 2017 compared with 56.8 in May. This fall was largely unexpected by the markets.


The services PMI fell to 54.7 in June 2017 compared with 56.3 in May. However, on the manufacturing front, the Euro zone manufacturing PMI rose to a six-year high of 57.3 in June 2017 compared with 57 in May.


Consumer prices in the Euro zone grew 1.4% year over year in May 2017 compared with a 1.9% rise in April. Consumer confidence increased to -1.3 in June 2017 compared with -3.3 in May, while Business confidence relaxed to 0.9 in May from 1.1 in April.


Major countries of the region reported a decline in PMI. France Composite PMI fell to 55.3 in June 2017 compared with 56.9 in May. German composite PMI declined to 56.1 in June 2017 compared with 57.4 in May.


Per Financial Times, Mario Draghi, President of the European Central Bank (ECB), stated that he is confident about his bank’s policies restoring inflation in the Euro zone and that the problems caused by the crisis have abated. Moreover, Draghi’s stance on the recovering Euro zone has sparked speculation in the market over a probable withdrawal of stimulus measures.


Let us now discuss a few ETFs that are primarily focused on providing exposure to European equities (see all European Equity ETFs here).


iShares MSCI Eurozone ETF EZU


This ETF is a play on developed European economies using the common currency with a focus on large and mid-cap equities.


It has AUM of $13.28 billion and charges 48 basis points in fees per year. The fund has a 32.26% allocation to France, 29.41% to Germany and 10.85% to Netherlands (as of June 26, 2017). From a sector look, Financials, Industrials and Consumer Discretionary are the top three allocations of the fund, with 19.61%, 15.37% and 13.39% exposure, respectively (as of June 26, 2017). Total SA, Sanofi SA, and Bayer AG are the top three holdings of the fund, with 2.58%, 2.57% and 2.51% exposure, respectively (as of June 26, 2017). It has returned 17.81% year to date and 28.39% in the last one year (as of June 27, 2017). It has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: German and Spanish Inflation at Record Low: ETFs in Focus).


SPDR Euro STOXX 50 ETF FEZ


This fund is appropriate for investors looking to gain diversified exposure to equities of the euro zone.


It has AUM of $4.13 billion and charges 29 basis points in fees per year. From a geographical perspective, the fund has top allocations to France, Germany and Spain, with 35.99%, 33.21% and 10.69% exposure, respectively (as of June 26, 2017). From a sector look, Financials, Industrials and Consumer Discretionary are the top three allocations of the fund, with 21.69%, 14.52% and 11.20% exposure, respectively (as of June 26, 2017). Total SA, Siemens AG and Sanofi are the top three holdings of the fund, with 4.54%, 4.44% and 4.22% exposure, respectively (as of June 26, 2017). The fund has returned 18.45% year to date and 30.86% in the last one year (as of June 27, 2017). It has a Zacks ETF Rank #1 with a Medium risk outlook.


iShares Core MSCI Europe ETF IEUR


This fund seeks to provide exposure to Europe equities across multiple market capitalizations.


It has AUM of $2.43 billion and charges 10 basis points in fees per year. From a geographical perspective, the fund has top allocations to UK, France and Germany, with 27.9%, 15.23% and 14.49% exposure, respectively (as of June 26, 2017).  From a sector look, Financials, Industrials and Consumer Staples are the top three allocations of the fund, with 19.47%, 14.80% and 13% exposure, respectively (as of June 26, 2017). Nestle SA, Novartis AG and Roche Holdings AG are the top three holdings of the fund, with 2.69%, 1.88% and 1.79% exposure, respectively (as of June 26, 2017). The fund has returned 17.30% year to date and 24.31% in the last one year (as of June 27, 2017). It has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: What Does UK Hung Parliament Mean for Europe ETFs?).


Bottom Line


Despite these headwinds, the fundamentals of the Euro area remain strong. Positive growth forecasts and slowing inflation make investing in this region an appealing option.


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ISHARS-EMU IDX (EZU): ETF Research Reports
 
SPDR-EU STX 50 (FEZ): ETF Research Reports
 
ISHRS-MSCI EUR (IEUR): ETF Research Reports
 
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