Bullish on Europe? Play Safe with the QLVD ETF

There is emerging enthusiasm for European stocks as some high profile investors believe the continent could be one of the top performing regions this year.

However, investors have heard this story before before they were disappointed. For those who think this year will be different – and there is evidence to suggest it will – the FlexShares Developed Markets excluding US Quality Low Volatility Index Fund (NYSE: QLVD) provides a conservative avenue for exposure to European equities.

QLVD holds nearly 230 shares, and while Japan has its largest individual exposure to countries, it also has large European allocations. The fund includes Swiss, UK, Danish, French, German and Dutch stocks on its list. These countries represent around 43% of QLVD’s geographic weight. This could be a plus for the rest of this year.

“We think there is a good chance that Europe will surpass all major regions this year for the first time in a calendar year since 2000”, according to a research note from Morgan Stanley cited by CNBC.

Sector-level benefits

While global investors are overwhelmingly positive on European equities this year, some sectors are more preferred than others, including healthcare and the region’s resurgent banking names. QLVD allocates nearly 32% of its weight to financial services and healthcare stocks.

There are also opportunities to be seized with European energy producers and electricity suppliers. Due to its status as a low volatility fund, QLVD has no exposure to energy, but its weight in utilities is decent at 7.58%.

To add to the case of QLVD as Europe’s indirect game, the beneficiary power on the continent is finally on the mend. For years, one of the main reasons European stocks were inexpensive compared to their US counterparts was that the former had poor earnings growth. That could change this year, especially with the return of trendy cyclical sectors.

“The price underperformance in Europe in 2020 was due to a significantly lower trend in earnings per share (EPS). After this larger decline, Europe has an opportunity to benefit from a larger rebound in EPS over the next 12-18 months than many of its peers, especially the United States, given the upside potential of corporate tax in 2022, ”according to Morgan Stanley.

QLVD is 5.35% higher year to date and 1.70% higher last month. The FlexShares fund has a dividend yield of 2%.

To learn more about multi-asset strategies, visit our Multi-asset channel.

The opinions and predictions expressed herein are solely those of Tom Lydon and may not come to fruition. The information on this site should not be used or interpreted as an offer to sell, a solicitation of an offer to buy or a recommendation for any product.

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