As the European debt crisis continues to unfold, more EU members may be forced to take bailout measures. Recent concerns with the Portuguese economy have replaced Ireland as the debtor du jour, and problems with Greece still linger. Debt concerns in Hungary, Latvia and the Czech Republic have the potential to unhinge the already fragile Euro-zone recovery. Broad-based European funds such as iShares S&P Europe 350 Index (NYSE:IEV) have bounced back from their lows, but are still cause for concern. However, Europe does offer some of the planets largest and most well known multinationals. By focusing on these nations and companies, investors can side step the EU mess.

IN PICTURES: 10 Reasons To Add ETFs To Your Portfolio

London Calling
The United Kingdom may be a good bet for investors in Europe. The U.K. has fared better than the average Euro-zone economy in 2010. The nation attracted more than $1 trillion in foreign direct investment in 2010 and ranks first in a survey of European Attractiveness. The U.K. is also the 6th largest economy in the world and the third largest in Europe, behind Germany and France [iShares MSCI France Index (NYSE:EWQ)].

While the nation does face similar problems as the United States faces, there has been a recent string of good news for U.K. At the beginning of the year, the British purchasing managers index (PMI) hit its highest levels since 1994. A weaker euro and a weak British pound are both benefiting Britain's manufacturers and exporters. Real estate prices in the U.K. are also beginning to stabilize. Home sellers raised prices in January, as a shortage of properties for sale has propped up property values. Prices increased nearly 7.4% in some areas outside of London and 0.3% overall. In addition, parliament seems ambitious in tackling the nation's debt, which currently sits at 71.3% debt to GDP. In order to tackle the debt, the U.K. is undergoing a huge austerity program, its largest since World War II. Even with these spending cutbacks, analysts estimate that the United Kingdom's economy will grow 2.1% in 2011.

The improving economic picture is just one reason investors should consider stocks in the United Kingdom. U.K. stocks are some of cheapest in the developed world. Price to earnings ratios of U.K. stocks trade at a 12-month forward P/E of 10.4 compared to 13.3 for the U.S. Buying U.K. stocks also allows investors to tap into the global growth story. According to UBS Wealth Management, about 70% of earnings from large-cap stocks within the nation stem from outside the U.K. Roughly 20% of earnings from U.K. large-cap, non-financial companies are from emerging markets.

A Fish and Chips Portfolio
As one of the largest developed markets, investors do have a lot of choice when it comes to adding the United Kingdom to a portfolio. The nation is typically included in a large portion of most developed-market ETFs. For investors wanting to hone in the opportunity in the U.K., the easiest way to do that is through the iShares MSCI United Kingdom Index (NYSE:EWU). The fund follows 108 of the largest companies within the nation such as mining giant, BHP Billiton (NYSE:BHP) and pharmaceutical firm GlaxoSmithKline (NYSE:GSK). And at 2.5%, the fund yields more than the S&P 500.

As the third largest reserve currency, behind the USD and the euro, the British pound has fallen during the economic crisis. However, many believe that the pound sterling is currently under-valued at $1.60. Investors wanting to bet on the performance of the pound can use the CurrencyShares British Pound Sterling Trust (NYSE:FXB).

Finally, for investors who prefer individual stock picking, many U.K. companies trade as ADRs on the NYSE, including British American Tobacco (NYSE:BTI) and Vodafone Group (NYSE:VOD).

Bottom Line
The ongoing Euro debt crisis has left many prospects for investors in the some stronger European nations. The United Kingdom represents an opportunity to gain emerging market exposure within a developed nation. While the nation does face some problems, longer term, the nation represents a value proposition. Investors can take advantage of this either through the U.K. ETF or one of the nation's many companies like Diageo (NYSE:DEO). (For more, see ETFs, How Did We Live Without Them?)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Mutual Funds & ETFs

    Why ETFs Are a Smart Investment Choice for Millennials

    Exchange-traded funds offer an investment alternative to cost-conscious millennials who want to diversify their portfolios with less risk.
  2. Stock Analysis

    Will J.C. Penney Come Back in 2016? (JCP)

    J.C. Penney is without a doubt turning itself around, but that doesn't guarantee the stock will respond immediately.
  3. Mutual Funds & ETFs

    Should Investors Take a BITE Out of This New ETF?

    ETF BITE offers a full menu of restaurants. Is now the right time to invest?
  4. Financial Advisors

    5 Things All Financial Advisors Should Know About ETFs

    Discover five things all financial advisors should know about ETFs, including when ETFs may be a better choice for your clients than mutual funds.
  5. Stock Analysis

    The Top 5 ETFs to Track the Nasdaq in 2016

    Check out five ETFs tracking the NASDAQ that investors should consider heading into 2016, including the famous PowerShares QQQ Trust.
  6. Investing

    Time to Bring Active Back into a Portfolio?

    While stocks have rallied since the economic recovery in 2009, many active portfolio managers have struggled to deliver investor returns in excess.
  7. Chart Advisor

    Now Could Be The Time To Buy IPOs

    There has been lots of hype around the IPO market lately. We'll take a look at whether now is the time to buy.
  8. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  9. Economics

    Long-Term Investing Impact of the Paris Attacks

    We share some insights on how the recent terrorist attacks in Paris could impact the economy and markets going forward.
  10. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  1. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  2. How do mutual funds work in India?

    Mutual funds in India work in much the same way as mutual funds in the United States. Like their American counterparts, Indian ... Read Full Answer >>
  3. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  4. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  5. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  6. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>

You May Also Like

Trading Center