3 Europe ETFs In Focus On Hopes Of Further Stimulus

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Includes: EZU, HEDJ, VGK
by: Zacks Funds

Though Bank of England's (BOE) decision to keep interest rate unchanged had a negative impact on financial markets worldwide, its announcement that it will introduce a new stimulus measure next month led the markets to erase most of the prior losses. Moreover, the European Central Bank (ECB), which is scheduled to have its first policy meeting after the Brexit vote next week, is also speculated to come up with aggressive economic stimulus to boost the Eurozone economy in the post-Brexit period. In this scenario, ETFs that have significant exposure to Europe are expected to be on investors' radar at least in the near term.

BOE Keeps Rate Unchanged, Builds Up Hope for New Stimulus

In the first policy meeting after the June 23 Brexit referendum, BOE surprised most investors by keeping the key interest rate unchanged. The general speculation was that the central bank would cut the rate to support the economy after its exit from the European Union (EU). Policy statement showed that eight out of nine Monetary Policy Committee members voted in favor of keeping the interest rate unchanged at 0.5%. Though this had a positive impact on financial sectors throughout the globe, it weighed on investor sentiment in the earlier session.

However, the statement revealed that the committee may come up with fresh stimulus packages in August to boost the economy. The statement showed: "Most members of the committee expect monetary policy to be loosened in August" and decisions over "the precise size and nature of any stimulatory measures" to be taken in upcoming weeks. The committee also decided to maintain the volume of its ongoing asset purchasing program at 375 billion pounds. Hopes of a new stimulus measure next month had a positive impact on financial markets throughout the globe.

Will ECB Introduce More Stimulus Measures?

Either the ECB will consider introducing new stimulus measures or will make changes in the current stimulus measures to support the economy of Eurozone in the post-Brexit era. The governor of the central bank of Estonia, Ardo Hansson recently said, "We will be vigilant… We continue to monitor the trends on financial markets and if there is a need to provide additional liquidity."

But he also added: "It's just that much tougher in the current environment to make the last steps, visible changes in the headline inflation. We just need some faith and to take a bit more time." Meanwhile, some of the economists anticipate the ECB to boost its existing bond purchasing program of 1.8 trillion euros by September. It is quite clear that though the central bank may not opt for changes in stimulus measures in next week's meeting, there is a strong possibility of a more aggressive stimulus by September.

3 Europe ETFs in Focus

We have highlighted top three popular Europe ETFs that are expected to get impacted significantly over the upcoming months if the central banks of European nations and the ECB opt for aggressive stimulus measures to boost their economies. Meanwhile, these ETFs carry a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (see all Europe ETFs here).

Vanguard FTSE Europe ETF (NYSEARCA:VGK)

This fund follows the FTSE Developed Europe All Cap Index and holds 1,243 stocks in its basket with 16.6% of its assets invested in the top 10 holdings. UK takes the top spot in terms of allocation with 31.4% of its assets invested in securities from the country followed by France (13.9%), Germany (13.4%) and Switzerland (13.4%). VGK is the most popular fund in its space with AUM of nearly $12.7 billion and solid volume of 5 million shares per day. This product has an expense ratio of 0.12%, significantly lower than the category average of 0.50%. It gained 3.6% and 5.7% over the past one-month and five-day periods.

WisdomTree Europe Hedged Equity ETF (NYSEARCA:HEDJ)

This seeks to follow the performance of the WisdomTree Europe Hedged Equity Index by investing in securities in order to neutralize exposure to fluctuations between the euro and the U.S. dollar. It has a basket of 137 stocks with 44.2% of its assets invested in the top 10 holdings. The fund invests more than half of its assets in securities from France and Germany. HEDJ is also quite popular with AUM of nearly $10.3 billion and trades in solid volume of more than four million shares per day on average. It charges a higher 58 bps in annual fees. It gained 4.7% and 3.5% over the past one-month and five-day periods.

iShares MSCI Eurozone (BATS:EZU)

This ETF provides targeted exposure to stocks issued in EU nations by tracking the MSCI EMU Index. It holds 248 stocks in its basket and has 23.1% of its assets invested in the top 10 holdings. France takes the top spot in terms of allocation with 32.3% of its assets invested in securities from the country followed by Germany (29.2%), the Netherlands (10.7%) and Spain (10.1%). The fund is the third most popular product in its space and has amassed $8.8 billion in its asset base. It trades in a strong volume of more than 8 million shares a day on average. EZU charges 48 bps in annual fees. It gained 4.9% and 0.6% over the past one-month and five-day periods.

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