Europe: Ready for a Revival?

06/02/2015 10:00 am EST


Benjamin Shepherd

Analyst, Breakthrough Tech Profits, Global Income Edge and Personal Finance

Although US growth has been virtually nil, Europe’s economy is starting to revive, observes Benjamin Shepherd, editor of Personal Finance.

European consumer prices halted a four-month slide, the euro is strengthening, and yields on German bonds are rising. Although our portfolio doesn’t have any Europe-specific funds, we’re not bereft of European exposure either.

At Causeway International Value (CIVVX), managers Sarah Ketterer and Harry Hartford like companies in crisis because that’s when you get them cheap.

The duo found quite a few bargains, ramping up their European exposure to more than 70% of assets. In particular, Ketterer and Hartford added to their positions in European banks over the past few quarters.

Given our own experience with quantitative easing, bulking up on banks makes sense because they profit nicely from lending virtually free capital at interest.

The fund has had some ups and downs, underperforming 75% of its peers last year. But it’s also slightly less volatile and tends to outperform long-term, ranking in the top 10% over the past five years.

If you’re looking for pure European exposure, Vanguard European Stock Index (VEURX) is one of the best and cheapest funds around.

Tracking the FTSE Developed Europe Index, the fund holds more than 500 large- and mid-cap stocks from 17 developed European nations.

At 21.6% of assets, financials get the greatest weighting, followed by healthcare at 14.1%, and consumer staples at 13.3%, though every sector is represented to some degree.

With a 0.26% expense ratio, the fund offers an inexpensive, reliable way to capitalize on a continent buoyed by quantitative easing.

If you prefer exchange-traded funds, buy Vanguard FTSE Europe ETF (VGK), the same fund in a different wrapper, but with an even lower, 0.12% expense ratio.

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