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Goldman Sachs Proposes a Eurozone Banks ETF

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Goldman Sachs recently planned a bank ETF on the Euro zone. The growth prospects in Europe have improved a lot from seven years ago at the time of debt crisis. Most recently, results of the latest stress test of Europe’s large banks showed that all of the financial institutions in the EU passed the European Central Bank’s (ECB) “adverse scenario.” Probably this is why, Goldman has come up with a plan to launch a bank ETF on this region (read: ECB May Hike Rates After Summer 2019: ETFs to Gain).

Inside the Proposed Fund

Goldman Sachs Eurozone Banks ETF looks to track the Solactive Eurozone Bank Index. The fund is a fairly plain-vanilla, and will target banking stocks in 10 Euro zone countries. These countries are Austria, Belgium, Finland, France, Germany, Ireland, Italy, the Netherlands, Portugal and Spain. The ticker code and the expense ratio of the fund are still not disclosed (read: Why Euro ETFs Could Be a Winning Bet in 2019).

The fund’s underlying index will derive its components from the Solactive GBS Developed Markets Eurozone Large & Mid Cap Index’s banking sector as well as the parent index’s investment banking and corporate finance industry group. The selected components are all weighted by free-float market capitalization.

How Does That Fit in a Portfolio?

Europe’s biggest bank, Deutsche Bank, performed better than expected, while Commerzbank AG and Société Générale SA came up with upbeat results this earnings season. And the ECB is about to end the Quantitative Easing (QE) by the end of 2018 as economic growth is stabilizing. This might result in a steeper yield curve, which in turn can boost banks’ net interest margin and profitability (read: ECB Sticks to Plan, No Surprises: ETFs That Gained).

In the recent market selloff, investors dumped European banking stocks at such a speed that hasn’t been seen since the financial crisis 10 years ago, “making it the region’s most oversold sector,” per Bloomberg. This opens up the scope for a rebound in banking stocks given the decent earnings releases.

Will it be a Success?

The fund should not see much competition. There is a pure-play financial ETF on Europe, namely, iShares MSCI Europe Financials ETF (EUFN - Free Report) . The fund has amassed about $1.03 billion in assets and charges 48 bps in fees.

The fund has 52.25% exposure to banks while 30.15% of the basket is invested in insurance stocks and 17.12% of assets are allocated to diversified financials. HSBC Holdings Plc (10.28%), Allianz (5.71%) and Banco Santander SA (4.82%) are the top three holdings of the fund. Investors should note that the proposed fund has focus only on banking stocks. So, EUFN can pose threat to the fund to some extent.

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