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Eurozone PMI Misses Forecasts: ETFs in Focus

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The Eurozone was a strong performer in 2017, owing to strong economic growth and fundamentals. However, the global market sell-off in early February might have weighed on the performance of the 19-nation bloc (read: ECB Leaves Interest Rate Unchanged: ETFs in Focus).

Into The Headlines

IHS Markit's Composite Flash Purchasing Managers Index (PMI) for the Eurozone fell to a 3-month low of 57.5 in February compared with 58.8 in January. This was also below Reuters’ forecast of 58.5. “The fall in today’s PMI is not very surprising as recent levels have been far too stratospheric to be sustainable,” Greg Fuzesi at JP Morgan told Reuters.

Moving on to the services PMI, it fell to 56.7 in February compared with 58.0 in January, a 2-month low. Moreover, Eurozone manufacturing PMI fell to 59.5 in February compared with 61.1 in the prior month.

“The PMI readings for the first two months of the quarter generally provide a reliable guide to official GDP growth, and indicate that the eurozone economy is expanding at a quarterly rate of 0.9% in the opening quarter of 2018,” per Chris Williamson, Chief Business Economist at IHS Markit.

Major countries of the region reported a decline in PMI. France Composite PMI fell to 57.8 in February compared with 59.6 in the prior month. German composite PMI declined to 57.4 in February compared with 59.0 in the prior month.

Economic Scenario

The 19-member Euro bloc and the 28-member European Union registered 2.5% growth in 2017, the highest in a decade.  Although there is slight weakness in PMI data, it still remains at levels not seen since before the financial crisis. Moreover, strong business confidence and low unemployment  are expected to lead to strong economic numbers in the near future (read: France ETFs in Focus as Economic Growth Hits 6-Year High).

As a result, economists expect the Eurozone to record strong growth in 2018 and the European Central Bank (ECB) to stop the asset purchase program at the end of the year. Moreover, in case the Federal Reserve hikes interest rates faster than expected, it might lead to a surge in the greenback against the euro, a positive for export dependent Europe.

Let us now discuss a few ETFs that are primarily focused on providing exposure to European equities (see all European Equity ETFs here).

iShares MSCI Eurozone ETF (EZU - Free Report)

This ETF is a play on developed European economies using the common currency with a focus on large and mid-cap equities.

It has AUM of $16.4 billion and charges 49 basis points in fees per year. The fund has a 32.8% allocation to France, 29.5% to Germany and 10.9% to Netherlands (as of Feb 20, 2018). From a sector look, Financials, Industrials and Consumer Discretionary are the top three allocations of the fund, with 21.0%, 15.1% and 14.1% exposure, respectively (as of Feb 20, 2018). Total SA, Banco Santander SA, and Allianz are the top three holdings of the fund, with 2.7%, 2.3% and 2.1% exposure, respectively (as of Feb 20, 2018). It has returned 1.2% year to date and 25.8 % in a year. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

SPDR Euro Stoxx 50 ETF (FEZ - Free Report)

This fund is appropriate for investors looking to gain diversified exposure to equities of the Eurozone.

It has AUM of $4.5 billion and charges 29 basis points in fees per year. From a geographical perspective, the fund has top allocations to France, Germany and Spain, with 37.0%, 32.7% and 10.2% exposure, respectively (as of Feb 20, 2018). From a sector look, Financials, Industrials and Consumer Discretionary are the top three allocations of the fund, with 23.3%, 14.1% and 12.0% exposure, respectively (as of Feb 20, 2018). Total SA, Siemens AG and Banco Santander SA are the top three holdings of the fund, with 5.0%, 4.1% and 3.9% exposure, respectively (as of Feb 20, 2018). The fund has returned 0.1% year to date and 21.8% in a year. It has a Zacks ETF Rank #3 with a Medium risk outlook.

iShares Core MSCI Europe ETF (IEUR - Free Report)

This fund seeks to provide exposure to Europe equities across multiple market capitalizations.

It has AUM of $2.9 billion and charges 10 basis points in fees per year. From a geographical perspective, the fund has top allocations to UK, France and Germany, with 27.8%, 15.6% and 14.7% exposure, respectively (as of Feb 20, 2018).  From a sector look, Financials, Industrials and Consumer Staples are the top three allocations of the fund, with 20.7%, 14.4% and 11.9% exposure, respectively (as of Feb 20, 2018). Nestle SA, HSBC Holdings Plc and Novartis AG are the top three holdings of the fund, with 2.2%, 1.9% and 1.7% exposure, respectively (as of Feb 20, 2018). The fund has returned 0.4% year to date and 22.2% in a year. It has a Zacks ETF Rank #3 with a Medium risk outlook.

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