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The European Central Bank (ECB), as widely expected, again cut its interest rate by 25 bps to 2% in a move to shore up a weakening economy. The move marks the eighth consecutive quarter-point cut in the past year. The ECB also signaled it is nearing the end of its rate-cutting cycle as inflation abates.
The decision underscores growing concern over the eurozone's sluggish recovery in the face of global headwinds, most notably, the destabilizing effects of ongoing U.S. trade policies under President Donald Trump. The ECB’s dovish stance will push European stocks and ETFs higher. With rates at their lowest in years and inflation subdued, European bonds, especially corporate debt, may gain renewed investor interest. A weaker euro will likely boost multinational earnings denominated in stronger foreign currencies.
As such, we have highlighted five European ETFs that stand to benefit from the ECB’s decision. These are Vanguard FTSE Europe ETF (VGK - Free Report) , iShares MSCI Eurozone ETF (EZU - Free Report) , iShares Core MSCI Europe ETF (IEUR - Free Report) , SPDR EURO STOXX 50 ETF (FEZ - Free Report) and JPMorgan BetaBuilders Europe ETF (BBEU - Free Report) . These funds could be excellent buys for investors seeking to reap benefits from the current measures.
Why ECB Cuts Rate Again?
Economic growth has slowed across the eurozone, especially in France, Germany and Italy, and the outlook for next year is weak, according to forecasts by the European Union (EU). Eurozone inflation fell to 1.9% in May, slipping below the ECB’s 2% target for the first time in nine months.
Additionally, Trump’s protectionist trade agenda has led to rate cuts by the ECB. The White House’s imposition of fresh tariffs on European industrial goods and autos, along with retaliation from EU partners, has curtailed exports and dampened business investment. The eurozone’s export-driven model, especially in manufacturing-heavy Germany, has proven vulnerable. A further escalation in global trade tensions could further hit euro area growth by dampening exports and dragging down investment and consumption (read: 6 Factors to Play Europe ETFs Now).
The ECB’s latest rate cut brings borrowing costs in the eurozone to less than half the level in the United States and the United Kingdom, where the Federal Reserve and Bank of England have held rates at 4.25%–4.5% and 4.25%, respectively.
"While the uncertainty surrounding trade policies is expected to weigh on business investment and exports, especially in the short term, rising government investment in defense and infrastructure will increasingly support growth over the medium term," the ECB said.
Vanguard FTSE Europe ETF offers exposure to companies located in the major markets of Europe by tracking the FTSE Developed Europe All Cap Index. It holds a broad basket of 1241 stocks with key holdings in financials, industrials, health care, and consumer discretionary sectors. Vanguard FTSE Europe ETF has AUM of $25.5 billion and trades in an average daily volume of 4 million shares. It charges 6 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
iShares MSCI Eurozone ETF provides exposure to developed market countries using the euro for currency and follows the MSCI EMU index. The fund holds about 223 securities in its basket with financials, industrials, information technology and consumer discretionary taking a double-digit allocation each. From a country look, France and Germany take the biggest share in the basket with 31.3% and 29.3%, respectively. iShares MSCI Eurozone ETF is one of the most popular ETFs in the broader European space, with AUM of $7.9 billion and an average daily volume of 2 million shares. It charges investors 51 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook (read: Europe ETF (EZU - Free Report) Hits New 52-Week High).
iShares Core MSCI Europe ETF tracks the MSCI Europe Investable Market Index, holding a broad basket of 1019 European companies. It has key holdings in financials, industrials, and health care sectors with double-digit exposure each. The United Kingdom is the top country accounting for 22.8%, followed by France (15.6%), Germany (14.9%), and Switzerland (14%). iShares Core MSCI Europe ETF has AUM of $6.7 billion and trades in an average daily volume of 1 million shares. It charges 9 bps in annual fees and has a Zacks ETF Rank #3.
SPDR EURO STOXX 50 ETF follows the EURO STOXX 50 Index, which measures the performance of some of the largest companies across the components of the 20 EURO STOXX Supersector Indexes. The fund appears rich with AUM of $4.6 billion and average daily volume of around 1.4 million shares. It charges 29 bps in annual fees and holds 50 securities in its basket with key holdings in financials, industrials, information technology and consumer discretionary sectors. In terms of country allocation, France and Germany lead with 36.9% and 29.1% share, respectively, followed by the Netherlands (23.3%), Spain (8.7%) and Italy (8.4%). SPDR EURO STOXX 50 ETF has a Zacks ETF Rank #3.
JPMorgan BetaBuilders Europe ETF provides investors exposure to developed European equity markets by tracking the Morningstar Developed Europe Target Market Exposure Index. It holds 396 stocks in its basket with key holdings in financials, industrials and consumer discretionary sectors. Here again, the United Kingdom is the top country accounting for 22.3% share, followed by France, Germany, and Switzerland with 14% share each. JPMorgan BetaBuilders Europe ETF has amassed $4.6 billion in its asset base and charges 9 bps in fees from investors. It trades in a heavy volume of nearly 330,000 shares a day on average and has a Zacks ETF Rank #3.
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European ETFs Set to Gain as ECB Cuts Rate Again
The European Central Bank (ECB), as widely expected, again cut its interest rate by 25 bps to 2% in a move to shore up a weakening economy. The move marks the eighth consecutive quarter-point cut in the past year. The ECB also signaled it is nearing the end of its rate-cutting cycle as inflation abates.
The decision underscores growing concern over the eurozone's sluggish recovery in the face of global headwinds, most notably, the destabilizing effects of ongoing U.S. trade policies under President Donald Trump. The ECB’s dovish stance will push European stocks and ETFs higher. With rates at their lowest in years and inflation subdued, European bonds, especially corporate debt, may gain renewed investor interest. A weaker euro will likely boost multinational earnings denominated in stronger foreign currencies.
As such, we have highlighted five European ETFs that stand to benefit from the ECB’s decision. These are Vanguard FTSE Europe ETF (VGK - Free Report) , iShares MSCI Eurozone ETF (EZU - Free Report) , iShares Core MSCI Europe ETF (IEUR - Free Report) , SPDR EURO STOXX 50 ETF (FEZ - Free Report) and JPMorgan BetaBuilders Europe ETF (BBEU - Free Report) . These funds could be excellent buys for investors seeking to reap benefits from the current measures.
Why ECB Cuts Rate Again?
Economic growth has slowed across the eurozone, especially in France, Germany and Italy, and the outlook for next year is weak, according to forecasts by the European Union (EU). Eurozone inflation fell to 1.9% in May, slipping below the ECB’s 2% target for the first time in nine months.
Additionally, Trump’s protectionist trade agenda has led to rate cuts by the ECB. The White House’s imposition of fresh tariffs on European industrial goods and autos, along with retaliation from EU partners, has curtailed exports and dampened business investment. The eurozone’s export-driven model, especially in manufacturing-heavy Germany, has proven vulnerable. A further escalation in global trade tensions could further hit euro area growth by dampening exports and dragging down investment and consumption (read: 6 Factors to Play Europe ETFs Now).
The ECB’s latest rate cut brings borrowing costs in the eurozone to less than half the level in the United States and the United Kingdom, where the Federal Reserve and Bank of England have held rates at 4.25%–4.5% and 4.25%, respectively.
"While the uncertainty surrounding trade policies is expected to weigh on business investment and exports, especially in the short term, rising government investment in defense and infrastructure will increasingly support growth over the medium term," the ECB said.
ETFs to Consider
Vanguard FTSE Europe ETF (VGK - Free Report)
Vanguard FTSE Europe ETF offers exposure to companies located in the major markets of Europe by tracking the FTSE Developed Europe All Cap Index. It holds a broad basket of 1241 stocks with key holdings in financials, industrials, health care, and consumer discretionary sectors. Vanguard FTSE Europe ETF has AUM of $25.5 billion and trades in an average daily volume of 4 million shares. It charges 6 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
iShares MSCI Eurozone ETF (EZU - Free Report)
iShares MSCI Eurozone ETF provides exposure to developed market countries using the euro for currency and follows the MSCI EMU index. The fund holds about 223 securities in its basket with financials, industrials, information technology and consumer discretionary taking a double-digit allocation each. From a country look, France and Germany take the biggest share in the basket with 31.3% and 29.3%, respectively. iShares MSCI Eurozone ETF is one of the most popular ETFs in the broader European space, with AUM of $7.9 billion and an average daily volume of 2 million shares. It charges investors 51 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook (read: Europe ETF (EZU - Free Report) Hits New 52-Week High).
iShares Core MSCI Europe ETF (IEUR - Free Report)
iShares Core MSCI Europe ETF tracks the MSCI Europe Investable Market Index, holding a broad basket of 1019 European companies. It has key holdings in financials, industrials, and health care sectors with double-digit exposure each. The United Kingdom is the top country accounting for 22.8%, followed by France (15.6%), Germany (14.9%), and Switzerland (14%). iShares Core MSCI Europe ETF has AUM of $6.7 billion and trades in an average daily volume of 1 million shares. It charges 9 bps in annual fees and has a Zacks ETF Rank #3.
SPDR EURO STOXX 50 ETF (FEZ - Free Report)
SPDR EURO STOXX 50 ETF follows the EURO STOXX 50 Index, which measures the performance of some of the largest companies across the components of the 20 EURO STOXX Supersector Indexes. The fund appears rich with AUM of $4.6 billion and average daily volume of around 1.4 million shares. It charges 29 bps in annual fees and holds 50 securities in its basket with key holdings in financials, industrials, information technology and consumer discretionary sectors. In terms of country allocation, France and Germany lead with 36.9% and 29.1% share, respectively, followed by the Netherlands (23.3%), Spain (8.7%) and Italy (8.4%). SPDR EURO STOXX 50 ETF has a Zacks ETF Rank #3.
JPMorgan BetaBuilders Europe ETF (BBEU - Free Report)
JPMorgan BetaBuilders Europe ETF provides investors exposure to developed European equity markets by tracking the Morningstar Developed Europe Target Market Exposure Index. It holds 396 stocks in its basket with key holdings in financials, industrials and consumer discretionary sectors. Here again, the United Kingdom is the top country accounting for 22.3% share, followed by France, Germany, and Switzerland with 14% share each. JPMorgan BetaBuilders Europe ETF has amassed $4.6 billion in its asset base and charges 9 bps in fees from investors. It trades in a heavy volume of nearly 330,000 shares a day on average and has a Zacks ETF Rank #3.