Eurozone Activity At 18-Month: 4 ETFs To Watch

Growth in Eurozone economic activity declined to a one-and-a-half year low in May. IHS Markit’s Eurozone Composite PMI revealed that Eurozone growth fell to an 18-month low of 54.1 in May 2018 from 55.1 in April.

Italy led the slowdown with the weakest growth among the top four Eurozone countries and the fifth straight month of decline. This was followed by France and Germany that saw their growth rate fall to a 16 and 20-month low, respectively. Spain is the only country that experienced PMI growth of a three-month high in May.

The IHS Markit Eurozone PMI Services Business Activity Index also slipped to 53.8 last month from 54.7 in April. Backlog orders and increase in input costs were mainly responsible for the slowdown (read: Negative News Flow Puts Eurozone ETFs in Focus).

The number of orders received by the four countries decreased with capacity constraints becoming more visible. Inventories have increased exponentially (24-month high), due to a lesser number of orders placed, which resulted in slow business growth since February. In response, firms have increased hiring that helped in service sector employment growth. Spain had the highest increase in employment, with Germany and France experiencing slower growth. Price rise continued as input costs and output charges picked up. Italy saw a drop in the selling price while it went up in the other three countries.

In this situation the ECB, has scheduled a meeting on Jun 14, to decide whether the quantitative easing program of bond purchase would continue till year-end or slowly wind up by September end. In view of this, the 10-year Treasury note yield rose to 2.98% reflecting an increase of 5.9 basis points, while the 30-year bond yield climbed 5.7 basis points to 3.13% as of Jun 6. Also the Italy bond yields went up 20 basis points to 1.18 on the same date.

Geopolitical tension on account of trade-wars between the United States and China, as well as import tariffs on European Union countries suggest that Eurozone recovery will take much more time than anticipated.

Given this, we have highlighted four ETFs that target the top four Eurozone countries each:

ETFs in Focus

iShares MSCI Italy ETF (LON:EWI)

The fund tracks Italian stocks and investment results of the MSCI Italy 25/50 Index. It has an asset base of $464 million and has a moderate expense of 49 basis points a year. The fund has 25 holdings in its basket and has a daily average trade volume of 1.25 million. Financials, Energy and Consumer Discretionary are the top sector exposures in this fund with 31.8%, 18.4% and 15.4% weight respectively. As for individual stocks ENI (MI:ENI), ENEL and Intesa Sanpaolo (MI:ISP) are the prominent ones with exposures of 12.4%, 12.2% and 10.9% respectively. The fund has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

iShares MSCI Germany ETF EWG

The fund tracks the performance of the MSCI Germany Index. It has amassed assets of $3.8 billion and has daily trade volumes of 4.2 million shares. It has 68 holdings in its portfolio and has an expense ratio 0.49%. SAP, Siemens and Bayer (DE:BAYGN) are the three largest individual stocks with none holding more than 9%. Consumer Discretionary, Materials and Industrials are the top sector holdings with weight of 18.4%, 14.8% and 13.7%, respectively. The fund has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Currency Hedged Eurozone ETFs to Buy After ECB Meet).

iShares MSCI France ETF EWQ

The fund has exposure to large and mid-sized companies in France and tracks the MSCI France Index. It has AUM of $888.7 million and charges an annual fee of 49 basis points. Comprising 81 holdings, the fund has Industrials, Consumer Discretionary and Financials as the top sectors with weights of 21%, 19.8% and 12.2% respectively. Individually Total SA (PA:TOTF), LVMH and Sanofi (PA:SASY) are the top three allocations with none holding more than 10%. The fund has a Zacks ETF Rank #2 with a Medium risk outlook.

iShares MSCI Spain ETF EWP

The fund has exposure to large and mid-sized companies in Spain and tracks the results of the MSCI Spain 25/50 Index. It has 23 holdings in its portfolio and has amassed an asset base of $1.05 billion. The fund charges an annual fee of 49 basis points and has a daily average trade volume of 1 million shares. Banco SA, Banco Bilbao and Iberdrola (MC:IBE) SA are the top individual holdings in EWP with weight of 18.9%, 9.2% and 8.3%, respectively. Financials, Utilities and Industrials are the top sectors in this fund with allocations of 41.4%, 16.7% and 14.7%, respectively. The fund has Zacks ETF Rank #3 with a Medium risk outlook (read: Top and Flop ETF Areas of May).

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