Investing in the Euro Zone

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker, financial journalist, and money manager.

European markets have consistently underperformed the United States for several years, but it seems as if a revival is now taking place. One way to invest in companies from a large number of countries in the Euro zone is through the WisdomTree Europe Hedged Equity ETF (HEDJ).

The term “Euro zone” refers to European countries that use the euro as their national currency, meaning that countries such as France, Germany, Greece, Italy and Austria are included under this umbrella. As a whole, the Euro-zone economies are gaining strength, with 2016 representing the first time since the 2008 financial crisis that the Euro zone’s gross domestic product (GDP) grew at a faster rate than the United States’ gross domestic product (GDP), with growth of 1.8% versus 1.7%, respectively.

Originally created in 2009, HEDJ seeks to provide investors with exposure to a broad range of Euro-zone equities and companies, many of which pay dividends. While HEDJ offers access to the entire Euro zone, the fund is primarily invested in Germany, 25%, France, 24%, Spain, 19%, and the Netherlands, 16%. The industrial, consumer discretionary, consumer staples and financial sectors make up the majority of HEDJ’s allocated investments, at a little more than 66% of total assets.

As a hedged fund, HEDJ strives to mitigate currency fluctuations of the euro relative to the U.S. dollar.

Although the fund is only eight years old, HEDJ has become a popular exchange-traded fund (ETF), currently boasting about $9.6 billion in net assets. When compared to broader European ETFs, such as the Vanguard FTSE Europe ETF (VGK), HEDJ has outperformed nicely over the course of the past year. Year to date, HEDJ is up close to 8%, better than the roughly 6% rise in the S&P 500.

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This fund has a moderate expense ratio of 0.58% and a respectable yield of 2.63%. Its top five holdings include Telefonica S.A., 5.84%; Banco Bilbao Vizcaya Argentaria S.A., 5.42%; Banco Santander S.A., 4.74%; Siemens A.G., 4.73%; and Daimler A.G., 4.58%.

Keep in mind that 2017 looks to be an uncertain year for the euro, as several countries, including France, potentially could abandon the European Union. As such, investing in European countries right now involves a degree of risk, but this may be counterbalanced by the fact that investing internationally offers just as much appeal as investing domestically for the first time in a while.

If you are interested in taking a broad swipe at prominent European countries and equities, then the WisdomTree Europe Hedged Equity ETF (HEDJ) could be a good place to start.

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