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(Markus Schreiber/Markus Schreiber/Associated Press)
(Markus Schreiber/Markus Schreiber/Associated Press)

ETFs

Bottom fishing in Europe? Don't do it yet Add to ...

Prospects for Europe are not encouraging. The S&P Europe 350 Index already has dropped 20 per cent from its high in May 2011. The MSCI EMU Index, which excludes participation in United Kingdom shares, has plunged 29.5 per cent. Economic prospects in Europe continue to deteriorate. The United Kingdom, Italy and Greece recently re-entered a recession. Austerity programs launched by governments in the United Kingdom, Spain, Portugal, Italy and Greece are curtailing prospects for growth. Elections in France and Greece over the weekend have added to uncertainties.

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On the charts, European equity markets have been underperformers during the past year. As this chart demonstrates, their intermediate trend is down, their strength relative to the S&P 500 Index is negative and their short term momentum indicators are trending down.

Seasonal influences are about to turn negative. Seasonal influences on European equity markets are similar to seasonal influences on North American equity markets. This 10-year seasonality chart on S&P Europe 350 Index shows its period of seasonal strength from near the end of October to the beginning of May.



Preferred strategy is to postpone investment in Europe until at least this fall when current economic, political, technical and seasonal uncertainties hopefully will have been resolved.

The easiest way for North Americans to invest in Europe (when the time is appropriate) is through a wide variety of ETFs. U.S. exchanges list 32 U.S. ETFs ranging from funds that hold a broad basket of European equity securities to funds that hold a narrower basket of securities in individual countries.



Three of the most actively traded broadly based European ETFs are the Vanguard MSCI European ETF , iShares S&P Europe 350 Index Fund and iShares MSCI EMU Index Fund .

iShares Europe 350 Index Fund holds a basket of large cap European listed equities including equity securities listed in the United Kingdom that represent 36.6 per cent of the portfolio’s weight. The Vanguard MSCI European ETF also holds a basket of large cap European listed equities that includes securities based in the United Kingdom. The Vanguard ETF is more diversified than the iShares ETF and has a slightly lower management expense ratio. iShares on the MSCI EMU Fund holds only securities that trade in euros and does not hold securities based in the United Kingdom.



Individual country ETFs closely track the performance of well-known equity indices such as the London FT Index, Frankfurt DAX Index and the Paris CAC Index. Following is a list with their symbols:



iShares MSCI Germany

iShares MSCI UK

iShares MSCI Switzerland

iShares MSCI France

iShares MSCI Italy

iShares MSCI Spain

iShares MSCI Netherlands

iShares MSCI Austria

Global X FTSE Norway

iShares MSCI Belgium

MSCI Ireland

iShares MSCI Australia

FTSE Greece 20



Don Vialoux is the author of free daily reports on equity markets, sectors, commodities and exchange traded funds. Daily reports are available at timingthemarket.ca. He is also a research analyst for Horizons Investment Management Inc. All of the views expressed herein are his personal views although they may be reflected in positions or transactions in the various client portfolios managed by Horizons Investment Management.

 
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