Finding ETF Nuggets Of Gold In Europe

October 01, 2014

Europe may be close to slipping into recession, but that doesn’t mean there aren’t opportunities for value investors.

This article is part of a regular series of thought leadership pieces from some of the more influential ETF strategists in the money management industry. Today’s article is by David Garff, president of Walnut Creek, Calif.-based Accuvest Investors.

After a long period of relative tranquility, macro events—both political and economic—seem to be dominating the world news once again. This is occurring after nearly five years of the U.S. outperforming the rest of the world. But the U.S. has gotten expensive relative to other countries.

In part because of the solid run in U.S. stocks, global strategists have begun to recommend European equities for a variety of reasons, including:

  • Stocks there are “cheap,” and Europe is 18 months behind the U.S. recovery, and thus should be on track for stronger economic growth
  • The ECB is committed to doing whatever it takes to keep Europe out of recession
  • A declining euro will help European competitiveness across the globe

In fact, in a quick sampling of eight global strategists, we found six of them recommended an overweight to Europe. Only one strategist recommended an underweight.

At Accuvest, we agree with some of the recent bullishness surrounding Europe, but in a selective manner. We see certain countries showing promise for value investors—Norway comes to mind via the two ETFs canvassing equities in the Nordic country, the iShares MSCI Norway Capped ETF (ENOR | C-96) and the Global X MSCI Norway ETF (NORW | C-93)—and two other countries as well.

We’re a bit discerning when evaluating the relative merits of any particular investment, whether region or country, because of a wide variety of factors, including fundamentals, momentum, risk and valuation. So let’s walk through our approach.

For purposes of our discussion, we’ll focus on valuation, and doing so will lead to what we think are prospective opportunities in both northern and southern Europe. So, let’s take a look at what Europe looks like relative to the rest of the world on three basic metrics. All data included in our analysis is as of Sept. 11, 2014.

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