Europe ETFs: Rising From The Dead

by on September 20, 2012 | ETFs Mentioned:

To put it mildly, European stocks have had a rough couple of years, as the eurozone sovereign-debt crisis continues to plague the continent. And with many economies in the eurozone continuing to teeter on the edge of default (or forced bailouts), investors around the globe have remained understandably leery of any investments made within the shaky economy. But as of this month, confidence in this corner of the market has surged as new developments have given investors incentive to flock to this once steady and rewarding sector [see also How To Pick The Right ETF Every Time].

During the highly anticipated European Central Bank meeting earlier this month, the central bank detailed its most aggressive plan to date to deal with the region’s mounting debt crisis. The newly unveiled bond-buying program entails the central bank purchasing short-maturity government bonds to keep borrowing costs down for Spain, Italy and other indebted countries. The new approach is to be a “fully effective backstop” against market volatility and is promised to be open-ended, but yet conditions have been firmly placed on the program. ECB President Draghi indicated that these struggling countries must themselves ask for help and must accept the related conditions, he states that “It’s in the hand of the government of Spain, and the governments of the euro area.” Whether or not these conditions will hinder the program’s effectiveness or help the currency bloc regain its economic footing will likely not be known until much further down the road [see also Why QE3 Is Just Delaying The Inevitable].

What is known, however, is that thus far European equities have responded positively to these latest developments, pushing nearly all of the funds in the Europe Equities ETFdb Category into the green. Currently, year-to-date returns range from a rather sour -2.25% to an impressive 24.3% gain, with the category average YTD return settling at roughly 13.9%.

Europe’s Heavy Hitters

Not surprisingly, investments in Belgium, Germany and Nordic countries continue to pump out stellar performances, as these nations have stood resilient amidst the eurozone drama. With double-digit returns, investors may want to keep a close eye on these European ETFs as the newest bailout plan continues to unfold (year-to-date returns as of September 19, 2012) [see also Global Titans ETFdb Portfolio]:

  • Market Vectors Germany Small-Cap ETF (GERJ+24.27%
  • FTSE Norway 30 ETF (NORW+23.84%
  • FTSE Nordic Region ETF (GXF+23.79%
  • MSCI Belgium Index Fund (EWK+21.72%
  • MSCI Germany Index Fund (EWG+21.54%
  • MSCI Ireland Capped Investable Market Index Fund (EIRL+19.69%

Weak Spots

Although the ECB’s new plan has placated investors, many are now looking towards the indebted countries to step up and take the necessary steps to ask for the much-needed bailout funds. On the top of the list comes Spain, whose government has been on the fence since the central bank’s announcement about whether or not the country will ask for the ECB’s help. And with time ticking away and speculations about this plagued country at an all-time high, Spanish equities have failed to attract significant demand from understandably leery investors. Consequently, of all of the funds in the Europe Equities ETFdb Category, the MSCI Spain Index Fund (EWP) is the only ETF in negative territory with its year-to-date return of  -2.64%.

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Disclosure: No positions at time of writing.