What European Slowdown? Here Are 4 ETFs Beating S&P 500

Europe may be slowing down.The Eurozone economy expanded 0.4% sequentially in the first three months of 2018, matching market expectations and following 0.7% growth in the preceding three-month period. GDP grew 2.5% year over year, after 2.8% expansion in the previous period and in line with market consensus.

The Euro-zone superpower German economy grew 0.3% (seasonally-adjusted) sequentially in the first quarter of 2018, following a 0.6% expansion in the previous period and below market expectations of 0.4%. It represented the slowest clip of expansion since the third quarter of 2016.

The French economy too logged the feeblest growth rate since the third quarter of 2016. Its economy grew 0.3% sequentially in Q1, slowing from a 0.7% expansion in Q14 of 2017 and below market expectations of 0.4%.

Not only Euro zone, the British economy saw the weakest growth since a 0.1% shrinkage seen in the fourth quarter of 2012. The GDP growth rate of the United Kingdom was 0.1% sequentially in Q1, which slowed from a 0.4% rise in the previous quarter. The growth rate also fell short of 0.3% market expectations (read: Why These UK ETFs & Stocks Deserve to be in Your Portfolio).

But this slowdown couldn’t dent the European markets. While weakness in any economy is dreaded, sometimes it bodes well for investors. This is because a slowdown in economies will compel the central banks to remain accommodative on their monetary policies.

The ECB has already acknowledged the moderation in economic growth in its latest meeting held on Apr 26. The bank stressed on the need to keep the policy rate constant. The bank also maintained that net asset purchases are likely to run at a monthly pace of €30 billion until the end of September, or beyond, should need be (read: Currency Hedged Euro Zone ETFs to Buy After ECB Meet).

Probably this is why, investors should not fear the slowdown in Europe, rather they can target some of the ETFs that not only outperformed the broader Europe fund Vanguard FTSE Europe ETF VGK (down 0.3%) in the last one month (as of May 16, 2018), but also beat the S&P 500 ETF SPY (up 0.8%) (see all European Equity ETFs here).

Deutsche X-trackers MSCI United Kingdom Hedged Equity Fund DBUK – Up 7.5%

The MSCI United Kingdom US Dollar Hedged Index provides exposure to the equity market of the United Kingdom, while at the same time mitigating exposure to fluctuations between the value of the U.S. dollar and British pound sterling. A currency-hedged approach proves beneficial in the current rising dollar environment. Its net expense ratio is 0.45% and it yields 3.95% annually.

JPMorgan Diversified Return Europe Currency Hedged ETF JPEH Up 5.9%

The underlying FTSE Developed Europe Diversified Factor 100% Hedged to USD Index comprises equity securities from developed Europe. It employs a multi-factor security selection, including value, quality and momentum factors. It charges 49 bps in fees and yields 2.76% annually.

iShares Currency Hedged MSCI Switzerland ETF HEWL – Up 4.4%

The Swiss economy seems to be better-placed. Moody’s Investors Service expects economic growth to pick up to 1.5% this year and 1.7% in 2019 compared with 1% for 2017. So, investors can try this fund thanks to the better growth rates. This currency-hedged fund charges 52 bps in fees.

WisdomTree Europe Hedged Equity ETF HEDJ Up 3.7%

The currency-hedged Europe ETF is heavy on France (26.3%) and Germany (25.2%). The fund charges 58 bps in fees.

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SPDR-SP 500 TR (SPY): ETF Research Reports
DEUTS-XT MS UK (DBUK): ETF Research Reports
WISDMTR-I HE FD (HEDJ): ETF Research Reports
JPM-DR ECH (JPEH): ETF Research Reports
VANGD-FTSE EUR (VGK): ETF Research Reports
ISHARS-CHM SWTZ (HEWL): ETF Research Reports
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