2 ETFs To Cash In On The ECB Rate Cut

| November 8, 2013 | 0 Comments

European stocksEuropean stocks have been on an incredible run since late June.  That’s when economic data showed the EuroZone was emerging from a year and a half long recession. 

A good proxy for European stocks is the Vanguard MSCI Europe ETF (VGK).  It’s up 27% year-to-date. 

Despite the surge in stock prices, the forward earnings estimates for European stocks haven’t budged.  In other words, the analysts covering these stocks don’t see earnings growth accelerating.

And for good reason…

The economic data out of Europe doesn’t show economic growth is accelerating.  And it’s nearly impossible for earnings to grow until the economy picks up steam.

What’s more, the EuroZone inflation rate is at its lowest level in four years. Consumer inflation fell to 0.7% in October.

As a result, the European Central Bank cut short term interest rates to 0.25% this week to stimulate the economy.  And ECB isn’t done.  They’ll continue to cut interest rates and do everything they can to get the economy growing.

The commitment from the ECB to do whatever is necessary to spur growth is clearly bullish for European stocks.  And it will likely lead to improved economic data, earnings growth, and more upside for European stocks.

The two countries I like to benefit the most from the ECB’s stimulus are France and Italy.  Let’s take a closer look at the iShares ETFs focused on these countries…

iShares MSCI France ETF (EWQ)

EWQ holds large- and mid-cap French stocks.  The fund holds 71 stocks and has an expense ratio of 0.49%.

It’s currently trading for $27.23.  It’s up 18.6% year-to-date.  And it pays a 2.44% dividend.

The highest concentrations of stocks in EWQ are in the industrial and financial sectors with 18.2% and 17.8% respectively.

iShares MSCI Italy Capped ETF (EWI)

EWI holds large- and mid-cap Italian stocks.  The fund currently holds 24 stocks and has an expense ratio of 0.49%.

It’s currently trading for $15.07.  It’s up 13.4% year-to-date.  And it pays a 1.96% dividend.

This fund is heavily weighted toward financials with 30.9% of holdings and energy with 23.0% of holdings devoted to these two sectors.

Here’s the upshot…

The European economy has bottomed.  And the recent cut in interest rates should be a huge boost to the weak Italian economy and the French economy that’s already showing signs of growth.

Good Investing,

Corey Williams

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Category: ETFs, Foreign Market ETFs, Market Analysis

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets three times a week. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

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