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Investing In European QE

Investing In European QE | The Details Regarding European QE

Mario DraghiNow that the European Central Bank’s President Mario Draghi has announce a Quantitative Easing (QE) program for Europe, it is time to consider the best ways to approach investing in European QE. The European Central Bank announced that it will buying €60 billion euros per month of bond securities starting immediately and lasting until September 2016. €60 billion euros a month equals approximately $1.2 trillion United States dollars through September 2016 at current exchange rates.

No matter how you calculate it, the European Central Bank has delivered exactly what the markets were looking for in the way of significant Quantitative Easing. This is important for investors, because it makes it likely that European stocks will outperform over the next two years, as the monetary stimulus from the European Central Bank provides plentiful liquidity to European stock markets and ensures interest rates across Europe stay low over the next couple of years.   It will also cause an uptick in European exports to the rest of the world, as the Eurozone’s currency is devalued, causing products produced in the region to be less expensive on the world markets, boosting the Eurozone economy.

Does European Central Bank Quantitative Easing mean an economic recovery is coming to Europe? Not necessarily, but it should at least keep Europe from slipping into a recession and should cause European stocks to outperform. It will not be hard for European stocks to outperform United States stocks, because European stock markets are less expensive than United States stock markets. With the European Central Bank providing a Quantitative Easing backstop, it is time to consider which European stocks and funds make the most sense for investing in European QE.

How European QE Should Play Out

European Quantitative EasingThere are many ways to invest in European QE and profit from this easy money policy. You do not need a brokerage account that is capable of buying securities on European stock exchanges. Many large European companies have shares available to trade on United States stock exchanges via American Depositary Receipts (ADRs). American Depositary Receipts are indirect holdings of foreign company’s stock. If there are no American Depositary Receipts, then shares of European companies may be available on the otcmarkets.com (Pink Sheets) trading platform.   There are also numerous Exchange Traded Notes (ETNs), Exchange Traded Funds (ETFs) and mutual funds that focus on Europe and can be purchased in the United States.

One good thing about investing in European stocks during European QE is that unlike American stocks, European stocks are not richly valued, on average. As a whole, European stocks are fairly valued to undervalued, which means they have the potential to increase in value as European QE plays out and growth and earnings pick up.

The best sectors to focus on when investing in European QE include the financial sector, the industrial sector and the IT sector.   All three of these important stock market sectors stand to benefit from European QE and the higher growth that it will bring.

The following are some European Exchange Traded Funds (ETFs) for investing in European QE.

  • iShares Europe (NYSE: IEV) is an ETF that seeks to track the investment results of an index composed of European equities called the S&P Europe 350 index. The index includes stocks of major companies in the following European countries: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom. It holds well-known companies, such as Novartis and Nestle.
  • Vanguard FTSE Europe ETF (NYSE: VGK) is an ETF that seeks to track the performance of a benchmark index called the FTSE Developed Europe Index that includes major stocks in Europe. The FTSE Developed Europe Index is made up of over 500 common stocks of companies located mainly in the United Kingdom, France, Switzerland, and Germany. It holds well-known companies, such as Royal Dutch Shell and Bayer.
  • SPDR S&P Emerging Europe (NYSE: GUR) is an ETF that seeks investment results that correspond generally to the total return performance of the S&P European Emerging Capped BMI Index. The index is focused on emerging parts of Europe in the south and east of the continent.   It holds well-known companies, such as Lukoil and Gazprom.
  • WisdomTree Europe SmallCap Dividend (NYSE: DFE) is an ETF that seeks investments that track the price and yield performance of the WisdomTree Europe SmallCap Dividend Index, which is made of small capitalization stocks that trade on European stock markets. Since the fund holds small capitalization stocks companies, few of the companies are known to investors outside of Europe.

The following are some European mutual fund ideas for investing in European QE.
European QE

  • T. Rowe Price European Stock Fund (PRESX)
  • Henderson European Focus Fund (HFEAX)
  • Invesco European Growth Fund (AEDAX)
  • Invesco European Small Company Fund (ESMAX)
  • Mutual European Fund (TEMIX)
  • JPMorgan Intrepid European Fund (VEUAX)
  • DFA Continental Small Company Portfolio (DFCSX)
  • Vanguard European Stock Index Fund (VEURX)
  • Putnam Europe Equity Fund (PEUGX)
  • Fidelity Europe Fund (FIEUX)

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