Things are starting to get interesting in the Eurozone with an upcoming European Central Bank (ECB) meeting and German elections on the docket.
Both events have the potential to stir stocks in the region. Advisors can position clients to capitalize on that trend without direct country risk with model portfolios, including the WisdomTree Developed International Factor Portfolio.
The WisdomTree model portfolio is home to five exchange traded funds, none of which are dedicated Europe or single-country offerings. That’s all right because the model portfolio mitigates some of the risks associated with dedicated regional ETFs or single-country funds. Additionally, there’s ample Eurozone exposure throughout the model portfolio’s holdings, which is positive for clients because the region’s economy is showing signs of life.
“The economic restart has been broadening beyond the U.S. – aided by an acceleration in vaccine rollouts, particularly in Europe and the rest of the developed world,” according to BlackRock research. “This has supported a sharp rise in European corporate earnings revisions from last year’s trough. Earnings revision ratios – the ratio of the number of stocks with corporate earnings upgrades to those with downgrades – are still on the rise in Europe, just as the ratio looks to be stalling in the U.S. (from high levels) and has already been trending lower in emerging markets.”
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The WisdomTree Dynamic Currency Hedged International Equity Fund (DDWM ) commands 30% of the model portfolio’s weight, making it the largest holding.
With the dollar strong, DDWM provides a buffer against euro weakness. Germany and France, the Eurozone’s two largest economies, combine for 18% of DDWM’s roster, and eight other Eurozone nations are represented in the fund. That’s a positive for investors because, as BlackRock notes, momentum is turning in favor of European equities.
“This shift in momentum lies behind our recent tactical upgrade in European equities to overweight and our neutral stance on U.S. equities. Against this backdrop, the ECB meets this month in its second policy meeting since the central bank adopted a new policy framework,” adds BlackRock.
The WisdomTree International Quality Dividend Growth Fund (IQDG ), another member of the model portfolio, is another example of a Eurozone-heavy fund. That ETF features exposure to nine Eurozone economies. Bottom line: The model portfolio is a relevant consideration for advisors into year-end.
“We recently upgraded European equities to overweight on the back of the broadening restart helped by accelerating vaccinations. Valuations remain attractive relative to history and look even more attractive than at the start of the year thanks to strong earnings; investor inflows into the region are only just starting to pick up,” concludes BlackRock.
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