Over the past few years, the world economy has undeniably struggled against significant headwinds after the unprecedented financial crisis rocked the markets in 2008. But while the U.S. has seemingly stayed on track to economic recovery, the eurozone has struggled to overcome its debt burdens. Until recently, most investors have remained understandably bearish on the currency block, but recent data has shown some glimmers of hope in the eurozone’s ability to bounce back .

Last week, the eurozone’s seemingly never-ending recession was brought to close after Eurostat reported that the economy grew at an annualized 1.1% rate in the second quarter – the first positive reading after 18 months of contraction. Despite the positive data, investors are still quite leery of whether or not the currency block will be able to fix its currency flaws and overwhelming debt burdens.

Eurozone GDP Turns Positive

In the second quarter, Euroozone Flash GDP was reported at 0.3% (quarterly rate), a significant turnaround from the previous -0.20% recording. Since the fourth quarter of 2011, the economy has contracted between 0.10% and 0.60% each quarter. While these declines are by no means as large as ones seen in 2009, investors and analysts alike have become skeptical of positive growth data, because in 2010 the economy seemed to be recouping at least some of its losses .

Many economists have also noted that the latest positive reading is yet another sign of how the eurozone’s recovery is still too sluggish to overcome the currency bloc’s deeper issues, such as rising debt piles, mass unemployment, struggling banks and political instability. Others point out that the uptick in GDP was primarily due to solid performances in both Germany and France – two countries that have over the years managed to stave off the worst of the recession.

A Closer Look At The Currency Bloc

While the eurozone as a whole has struggled to stay out of the red, a closer look at the bloc’s components shows a clearer picture of the local economies and equity markets. Below, we highlight the annual and year-to-date returns of several country-specific Europe ETFs and compare them to the more broad-based FTSE Europe ETF :

  • MSCI France ETF
  • MSCI Spain Capped ETF
  • MSCI Austria Capped ETF
  • MSCI Netherlands Investable Market ETF
  • MSCI Belgium Capped ETF
  • MSCI Italy Capped ETF
  • MSCI Germany ETF

Back in 2009, Austria’s stellar performance pushed EWO to the top, with the fund gaining nearly 60% during the year. Fast-forward to 2011, however, and EWO was the worst performer, shedding more than 30%. Over the last year and half, the Belgium, Germany and France ETFs have performed quite well given the circumstances. The broad-based VGK has also fared well, but investors should note that the fund is heavily biased toward the “safer” eurozone countries, as well as economies outside of the currency bloc .

The Bottom Line

Despite recent positive economic data, investors should still remain cautious before choosing to add exposure to the eurozone economy, as it will likely take several more years for the currency bloc to get back on track. In the mean time, certain economies within the bloc have shown promising signs over the last year and half and certainly warrant a closer look from investors.

Follow me on Twitter @DPylypczak.

Disclosure: No positions at time of writing.

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI Emerging Mkts

    Learn more about the PowerShares FTSE RAFI Emerging Markets ETF, a fundamentally weighted fund that tracks emerging market equities.
  2. Mutual Funds & ETFs

    ETF Analysis: iShares Cali AMT-Free Muni Bond

    Learn more about the iShares California AMT-Free Municipal Bond exchange-traded fund, a popular tax-advantaged ETF that dominates its category.
  3. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Emerging Markets Dividend

    Learn more about the SDPR S&P Emerging Markets Dividend Fund, a yield-focused exchange-traded fund tracking global emerging economies.
  4. Mutual Funds & ETFs

    ETF Analysis: First Trust Dow Jones Global Sel Div

    Find out about the First Trust Dow Jones Global Select Dividend Index Fund, and learn detailed information about characteristics and suitability of the fund.
  5. Mutual Funds & ETFs

    ETF Analysis: U.S 12 Month Natural Gas

    Learn about the United States 12 Month Natural Gas Fund, an exchange-traded fund that invests in 12-month futures contracts for natural gas.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares Floating Rate Bond

    Explore detailed analysis and information of the iShares Floating Rate Bond ETF, and learn how to use this ETF as a defense against rising interest rates.
  7. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraPro Short S&P500

    Find out information about the ProShares UltraPro Short S&P 500 exchange-traded fund, and learn detailed analysis of its characteristics and suitability.
  8. Mutual Funds & ETFs

    ETF Analysis: SPDR Barclays Investment Grd Fl Rt

    Learn more about the SPDR Barclays Investment Grade Floating Rate Fund, which tracks an index of highly rated floating debt securities.
  9. Mutual Funds & ETFs

    ETF Analysis: ALPS Medical Breakthroughs

    Learn more about a unique and innovative exchange-traded fund (ETF) in the biotechnology industry: the ALPS Medical Breakthroughs Fund.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares US Healthcare

    Learn about the iShares U.S. Healthcare exchange-traded fund, which invests in a wide range of health care providers, hospitals and home care facilities.
RELATED TERMS
  1. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  2. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  3. Fractal Markets Hypothesis (FMH)

    An alternative investment theory to Efficient Market Hypothesis ...
  4. Lion economies

    A nickname given to Africa's growing economies.
  5. Factor Investing

    An investment strategy in which securities are chosen based on ...
  6. Reverse Gold ETF

    Exchange traded funds that are designed to trade in a direction ...
RELATED FAQS
  1. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  2. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  3. What is the difference between passive and active asset management?

    Asset management utilizes two main investment strategies that can be used to generate returns: active asset management and ... Read Full Answer >>
  4. Is there a situation in which wash trading is legal?

    Wash trading, the intentional practice of manipulating a stock's activity level to deceive other investors, is not a legal ... Read Full Answer >>
  5. Are there leveraged ETFs that follow the retail sector?

    There are many exchange-traded funds (ETFs) that track the retail sector or elements of the retail sector, and some of those ... Read Full Answer >>
  6. What are some of the most popular ETFs that track the retail sector?

    Some of the most popular exchange-traded funds (ETFs) that track the retail sector include the iShares S&P Global Consumer ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!