The 3 Worst Performing European ETFs

Last week saw a spate of negative news globally. While American and Chinese stocks saw little losses, European stocks were the worst losers. In fact, they saw the first weekly drop since April on geopolitical tensions in Iraq and Ukraine. Additionally, weak manufacturing and service data for the Euro zone on the first day continued to weigh on the stocks for the whole week.

This is especially true as economic and business activity in the Eurozone slowed for the second consecutive month in June and was the weakest since December. According to Markit Economics, PMI Composite index for the Eurozone dropped to a six-month low of 52.8 in June from 53.5 in May, signaling that the recovery is losing momentum. This is well below economists' forecast of 53.4.

Sluggish growth was in large part due to deepening worries in France with continued slowdown in both the service and manufacturing sectors that pulled down whole of the Euro zone. Additionally, the national agency of France projects economic growth of 0.7%, below the government target of 1%.  

While Germany – Europe’s largest economy – showed robust growth with PMI index rising to 54.2 in June, the reading is far lower than 55.6 recorded in May. Further, German business confidence fell unexpectedly in June on growing tension in Russia and escalating violence in Iraq. In another round of economic data, consumer confidence in Italy also dipped in June after three consecutive months of gains.

Moreover, sluggish U.S. economic growth for the first quarter and the latest hawkish comments from the Fed officials created more downward pressure on European shares last week. Given the downbeat economic indicators and weakness in equities, most of the European ETFs also fell sharply.

Below, we have highlighted three worst performing unleveraged funds in the European region that delivered lackluster returns last week.

Global X FTSE Greece 20 ETF (NYSE:GREK) – Down 6.3%

This ETF provides exposure to the 26 largest Greek securities listed on the Athens Stock Exchange by tracking the FTSE/ATHEX Custom Capped Index. The fund manages an asset base of $285.4 million and trades in solid volume of 364,000 shares per day on average. It charges 65 bps in fees per year from investors.

The product is highly concentrated on the top five firms, accounting for 45.7% of total assets. Other firms hold less than 5% share in the basket. While large caps make up for 58% share, mid caps take the reminder. Further, more than one-third of the portfolio is skewed toward financials while consumer discretionary, materials and consumer staples occupy double-digit allocation.

iShares MSCI United Kingdom ETF (ARCA:EWU) – Down 5.3%

This is a large cap centric fund and targets the UK stock market. The fund follows the MSCI United Kingdom Index. Holding 108 securities, the product does a decent job of spreading assets, as a single stock in the basket makes up less than 6.5% of the portfolio (read: Time to Bet on the British ETF?).

From a sector look, financials is the top sector at 21.43%, closely followed by energy (17.84%) and consumer staples (16.38%). EWU is by far the popular and liquid ETF in the European space with AUM of $4.1 billion and average daily volume of nearly 2.8 million shares. Expense ratio came in at 0.48%.

iShares MSCI Norway Capped ETF (NYSE:ENOR) – Down 4.1%

This product provides targeted exposure to 59 Norwegian stocks by tracking the MSCI Norway IMI 25-50 Index. It has amassed $16.3 million in its asset base while volume is paltry, trading in less than 6,000 shares per day. As such, total cost of trading came in much higher than the expense ratio of 0.53%.

The fund is heavy on the top firm, Statoil at 19.5% of the asset base and the top sector, energy at 44.1%. Other securities do not hold more than 19.52% share while other sectors make up for a nice mix in the portfolio.

Bottom Line

These products easily underperformed the broad European fund (Vanguard MSCI EU (ARCA:VGK)) last week by wide margins, suggesting the weak positive shift in the momentum of the European outlook heading into the second half. However, investors should note that the products are expected to outperform over the next one-year period given that they have a solid Zacks ETF Rank of 2 or ‘Buy’ rating.

As a result, investors should definitely cash in on the opportunity from the recent dip in the stock prices by stuffing these ETFs in their portfolio or wait for the right entry until the negative wind flow reverses.

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