Current monetary policy and inflation have driven bond yields down to a level such that investors are often receiving a negative real return. In the UK, 10-year gilts yield 2.3%, inflation is hovering somewhere around 4% and even 50-year bond yields 3.2%.
Against this backdrop Neil Dwane, CIO Europe at Allianz Global Investors, believes that European equities look ‘very cheap, very under-owned and very unloved’. In his view, this represents a great opportunity for investors willing to invest over the medium to long term.
Neil Dwane says: “It is a consensus to say from an investment perspective everyone hates Europe. Investors are worried about the euro and what’s happening in the EU. This has led European equities to look very cheap, very under-owned and very unloved.
“In our view this makes for a magical trinity of opportunity for investors prepared to take a medium to long-term investment horizon. We believe that Europe still looks very attractive both on price/earnings and dividend yield valuations, and Europe looks particularly cheap compared to the US.
DB X-trackers EURO STOXX 50 ETF (XESC)
- Tracks the EURO STOXX 50 Index, the eurozone’s
- Over-collateralised (currently 101.62%) swap-based
- UCITS compliant, London listed, UK Distributor
- 0.00% TER. There is no fee charged on this fund as
“European companies are not only less leveraged than American companies but they are also likely to pay out more of their dividends to shareholders, a theme that has been emerging over the last seven to ten years. When we look not only at how we can protect investors’ wealth in these challenging circumstances, but also how we can enhance it, the case for equities and investing in dividend yielding companies is that you are investing in a ‘living’ economic organism with the ability to adjust and adapt to the economic and financial conditions in which it operates.
“Obviously, valuations are crucial. We find that on current earnings assessments that many equity markets around the world look very attractive. It is fair to say on medium- and longer-term valuations like the Graham & Dodd PEs, that the US equity markets looks expensive and Europe and Japan look more attractive.”
For UK-based investors looking to access European companies, there are a number of London-listed ETFs to consider, tracking a range of different indices.
The following six ETFs track the EURO STOXX 50 Index, Europe’s leading blue-chip index for the eurozone. The EURO STOXX 50 Index provides large-cap exposure to supersector leaders in the eurozone. The index covers 50 stocks from 12 eurozone countries: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.
DB X-trackers EURO STOXX 50 ETF (XESC) TER: 0.00%
HSBC EURO STOXX 50 ETF (H50E) TER: 0.15%
Credit Suisse EURO STOXX 50 ETF (CS51) TER: 0.20%
Lyxor ETF EURO STOXX 50 TR (MSEG) TER: 0.25%
iShares EURO STOXX 50 ETF (EUE) TER: 0.35%
EURO STOXX 50 Source ETF* (SDJE50 GR) TER: 0.15%
*Listed on Xetra but UK registered with UK Reporting Status
The following two funds track the MSCI EMU Index. The MSCI EMU Index is a free float-adjusted market-capitalisation weighted index that is designed to measure the equity market performance of countries within the European Economic and Monetary Union (EMU). The index consists of the following 11 developed market country indices: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Portugal, and Spain.
Amundi ETF MSCI EMU (CMU) TER: 0.25%
Credit Suisse MSCI EMU ETF (CEU1) TER: 0.33%
The following fund tracks the FTSEurofirst 80 Index. The FTSEurofirst 80 Index offers exposure to the 60 largest eurozone companies measured by market capitalisation in the FTSE Euro zone Index and 20 additional companies selected for their size and sector representation.
iShares FTSEurofirst 80 ETF (IEUR) TER: 0.40%
The following fund tracks the MSCI Europe ex-UK Index. The MSCI Europe Index is a free float-adjusted market-capitalisation weighted index that is designed to measure the equity market performance of the developed markets in Europe. The index consists of the following 15 developed market country indices: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, and Switzerland.
iShares MSCI Europe ex-UK ETF (IEUX) TER: 0.40%
The following fund tracks the FTSE RAFI Europe Index. The FTSE RAFI Europe Index is designed to track the performance of the largest European equities, selected based on the following four fundamental measures of firm size: book value, income, sales and dividends. The index consists of stocks from the United Kingdom, France, Germany, Switzerland, Spain Netherlands, Italy, Sweden, Finland, and Denmark.
PowerShares FTSE RAFI Europe ETF (PSRE) TER: 0.50%
The following fund tracks the performance of the equally-weighted version of the EURO STOXX 50 Index NR. The EURO STOXX 50 Equal Weight Index NR has the same constituents as the market-capitalisation weighted index (see above), but each company in the Equal Weight index is allocated the same weight (2% in normal circumstances).
Ossiam ETF EURO STOXX 50 Equal Weight NR (L5EW) TER: 0.30%