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The investing world saw a surprising ECB meeting on Thursday. The European Central Bank announced that it would lower its bond buying program to 60 billion euros a month from 80 billion from April, but extended the program to December 2017, or beyond, should there be necessity.
Earlier, the planned conclusion of the QE program was March 2017. Market watchers did not expect any sort of reduction in QE, though the fear had surfaced in October (read: 4 Inverse Bond ETFs to Watch as Rates Rise).
Thanks to the ECB decision, bond market oscillated, initially witnessing a rise in yields, which later drifted downward after the central bank hinted at “buying bonds with yields below the ECB’s deposit rate of minus 0.4%.’’
Overall, long-term bonds were more hurt on a rising inflationary prospect, resulting in a steepening of the yield curve. This is especially true as the ECB expects inflation to pace up substantially “[further] at the turn of the year, mainly owing to base effects in the annual rate of change of energy prices.’’
Investors should note that Euro zone inflation touched a 31-month high in November, meeting market expectations. As a result, German yields hit an 11-month high on December 8 while bond yields in the Euro zone’s feebler economies—Spain, Italy and Portugal— saw a steeper rise.
While several Europe ETFs were hit on December 8 – some out of a fear of a reduction in QE and some out of currency woes – as evident from 0.6% losses in the broader Europe ETF Vanguard FTSE Europe ETF (VGK - Free Report) , there are still winners in the flock. After all, Euro zone economies are gaining momentum lately though ECB believes that "the risks surrounding the euro area growth outlook remain tilted to the downside."
Following is table on ECB’s projection over inflation and growth made in the September and December meetings.
Against this backdrop, below we highlight the key ETF losers and winners following the ECB meeting, which may continue their course in the near term.
The euro ETF lost over 1.4% on December 8, 2016 as the common currency recorded its biggest single-day percentage fall, on extension of the QE measure, since Brexit in late June. Apart from the ECB. Italy’s failed constitutional referendum this month also led to the euro’s weakness (read: Will Euro ETFs Stand Steady or Fall Like a 'House of Cards'?).
Investors should note that defeat of Italy’s prime minister in a referendum jeopardized euro’s future.After the results of the referendum held on December 4 were announced, the common currency Euro plummeted to a 20-month low. Also, the greenback’s surge in anticipation of faster Fed rate hikes weighed on euro. So investors should keep a tab on the fund in the coming days (read: ETF Winners & Losers as Dollar Hits 13-Year High).
Winners
Global X Scientific Beta Europe ETF
The underlying index of the fund looks to outperform traditional market capitalization-weighted indexes, with lower volatility. Britain (21.77%), France (15.47%), Switzerland (11.90%) and Germany (11.32%) get double-digit weight in the fund. The fund added over 1.8% on the day.
iShares Currency Hedged MSCI Spain ETF
Probably the twelve successive quarters of growth and a brighter inflationary outlook put the currency-hedged Spain ETF in focus, with gains of over 1.5% on December 8. Notably, Spain's consumer prices are expected to rise 0.7% year over year in November 2016, beating market expectations of a 0.5% rise.
SPDR EURO STOXX 50 Currency Hedged ETF
The fund is heavy on France (36.73%) and Germany (33.27%). As far as sectorial breakdown goes, Financials (22.2%), Industrials (14%) and Consumer Discretionary (11.6%) get the top three spots. The fund added about 1.2% on December 8, 2016.
Deutsche X-trackers MSCI Eurozone High Dividend Yield Hedged Equity ETF
With long-term bond yields expected to rise, investors may look for some benchmark-beating yield-oriented investment. Probably this is why, HDEZ – which yields around 3.84% -- gained about 1.1% on December 8. Germany (26.4%), Finland (21%) and France (16.2%) are the top three regions of the fund.
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ECB Trims But Extends QE: ETF Winners & Losers
The investing world saw a surprising ECB meeting on Thursday. The European Central Bank announced that it would lower its bond buying program to 60 billion euros a month from 80 billion from April, but extended the program to December 2017, or beyond, should there be necessity.
Earlier, the planned conclusion of the QE program was March 2017. Market watchers did not expect any sort of reduction in QE, though the fear had surfaced in October (read: 4 Inverse Bond ETFs to Watch as Rates Rise).
Thanks to the ECB decision, bond market oscillated, initially witnessing a rise in yields, which later drifted downward after the central bank hinted at “buying bonds with yields below the ECB’s deposit rate of minus 0.4%.’’
Overall, long-term bonds were more hurt on a rising inflationary prospect, resulting in a steepening of the yield curve. This is especially true as the ECB expects inflation to pace up substantially “[further] at the turn of the year, mainly owing to base effects in the annual rate of change of energy prices.’’
Investors should note that Euro zone inflation touched a 31-month high in November, meeting market expectations. As a result, German yields hit an 11-month high on December 8 while bond yields in the Euro zone’s feebler economies—Spain, Italy and Portugal— saw a steeper rise.
While several Europe ETFs were hit on December 8 – some out of a fear of a reduction in QE and some out of currency woes – as evident from 0.6% losses in the broader Europe ETF Vanguard FTSE Europe ETF (VGK - Free Report) , there are still winners in the flock. After all, Euro zone economies are gaining momentum lately though ECB believes that "the risks surrounding the euro area growth outlook remain tilted to the downside."
Following is table on ECB’s projection over inflation and growth made in the September and December meetings.
Against this backdrop, below we highlight the key ETF losers and winners following the ECB meeting, which may continue their course in the near term.
Losers
CurrencyShares Euro Trust (FXE - Free Report)
The euro ETF lost over 1.4% on December 8, 2016 as the common currency recorded its biggest single-day percentage fall, on extension of the QE measure, since Brexit in late June. Apart from the ECB. Italy’s failed constitutional referendum this month also led to the euro’s weakness (read: Will Euro ETFs Stand Steady or Fall Like a 'House of Cards'?).
Investors should note that defeat of Italy’s prime minister in a referendum jeopardized euro’s future.After the results of the referendum held on December 4 were announced, the common currency Euro plummeted to a 20-month low. Also, the greenback’s surge in anticipation of faster Fed rate hikes weighed on euro. So investors should keep a tab on the fund in the coming days (read: ETF Winners & Losers as Dollar Hits 13-Year High).
Winners
Global X Scientific Beta Europe ETF
The underlying index of the fund looks to outperform traditional market capitalization-weighted indexes, with lower volatility. Britain (21.77%), France (15.47%), Switzerland (11.90%) and Germany (11.32%) get double-digit weight in the fund. The fund added over 1.8% on the day.
iShares Currency Hedged MSCI Spain ETF
Probably the twelve successive quarters of growth and a brighter inflationary outlook put the currency-hedged Spain ETF in focus, with gains of over 1.5% on December 8. Notably, Spain's consumer prices are expected to rise 0.7% year over year in November 2016, beating market expectations of a 0.5% rise.
SPDR EURO STOXX 50 Currency Hedged ETF
The fund is heavy on France (36.73%) and Germany (33.27%). As far as sectorial breakdown goes, Financials (22.2%), Industrials (14%) and Consumer Discretionary (11.6%) get the top three spots. The fund added about 1.2% on December 8, 2016.
Deutsche X-trackers MSCI Eurozone High Dividend Yield Hedged Equity ETF
With long-term bond yields expected to rise, investors may look for some benchmark-beating yield-oriented investment. Probably this is why, HDEZ – which yields around 3.84% -- gained about 1.1% on December 8. Germany (26.4%), Finland (21%) and France (16.2%) are the top three regions of the fund.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>