With no deal yet inked between Westminster and Brussels ahead of the Oct. 31 Brexit deadline, European stocks have mostly tread water over the past month, and indeed over the course of this year, as investors consider the outcome of several Brexit scenarios. Meanwhile, as the highly anticipated the EU-U.K. separation date approaches, the European Central Bank (ECB) has preempted an acrimonious breakup by launching a substantial package of quantitative easing and slashing its main deposit rate to a new record low of -0.5% at its latest policy meeting.
Traders who follow the region's stocks should keep a close eye on a key stumbling block in the Brexit negotiations – the Irish backstop. The U.K. government's most recent proposal regarding the issue would see Northern Ireland, which is part of the United Kingdom, stay in the European single market for goods but leave the customs union.
"What we're saying to our friends is (that) this is a very generous, fair, and reasonable offer we've made. What we'd like to hear from you now is what your thoughts are," British prime minister Boris Johnson said Monday, per Reuters. To date, Brussels hasn't met the idea with enthusiasm, remaining skeptical of how the proposal would work in practice.
Amid the ongoing talks, the three Europe exchange-traded funds (ETFs) outlined below sit near crucial technical support and could see a relief rally on any hint of a last-minute Brexit breakthrough. Let's review each fund in more detail and analyze the charts to come up with possible trading opportunities.
iShares MSCI Eurozone ETF (EZU)
Formed in the year 2000, the iShares MSCI Eurozone ETF (EZU) seeks to deliver similar returns to the MSCI EMU Index – a benchmark comprising large- and mid-capitalization stocks from developed market countries that use the euro as their official currency. France and Germany receive the largest country allocations at 35.18% and 26.51%, respectively. The $5.41 billion fund provides a cost-effective alternative to gain exposure to prominent European companies such as multinational energy giant TOTAL S.A. (TOT), business software maker SAP SE (SAP), and luxury goods conglomerate LVMH Moet Hennessy – Louis Vuitton, Societe Europeenne (LVMUY). A narrow 0.03% average spread and turnover of more than 4 million shares per day make the ETF suited to all trading styles. As of Oct. 8, 2019, EZU offers an attractive 3.12% dividend yield and has returned 10.88% year to date (YTD).
The fund's share price climbed 21% between late December 2018 and early May but has remained mostly range bound since. Over the past few trading sessions, the ETF found support near the 200-day simple moving average (SMA) and a trendline extending back to that previously mentioned December low. Those who buy at these levels should anticipate a move up to $40.12, where price may encounter overhead resistance from the 2019 YTD high. Limit downside risk by cutting losses if the fund closes below $37.50, as this invalidates the trade setup.
First Trust Switzerland AlphaDEX Fund (FSZ)
The First Trust Switzerland AlphaDEX Fund (FSZ) has a mission to deliver similar investment results to the NASDAQ AlphaDEX Switzerland Index. It holds a basket of 40 stocks selected using a quantitative model based on a variety of growth and value factors, aiming to outperform the broader market. The ETF tilts toward industrials and financials sectors, with respective allocations of 29.79% and 26.22%. Key holdings in the fund include logistics firm Panalpina Welttransport (Holding) AG (PLWTF), independent private bank Compagnie Financiere Richemont SA (CFRUY), and life insurance provider Swiss Life Holding AG (SZLMY). Consider using limit orders to combat the ETF's wider 0.31% spread and lower trading volumes. FSZ has assets under management (AUM) of $131.49 million, charges a 0.80% management fee, and is up 10.31% so far in 2019. Investors also receive a 2.23% dividend yield.
Since the 50-day SMA crossed above the 200-day SMA in late April to generate a "golden cross" buy signal, FSZ shares have tracked sideways as investors contemplate how Brexit will impact the non-EU member country. A recent pullback to a nine-month uptrend line and 200-day SMA provides a suitable entry point for swing traders to open a long position. Once in a trade, look to book profits on a retest of the 52-week high at $51.42. Keep stops slightly beneath the Oct. 2 low at $47.15 to guard against a possible head and shoulders top.
Global X MSCI Greece ETF (GREK)
With $335.96 million in net assets, the Global X MSCI Greece ETF (GREK) has an objective to offer similar returns to the MSCI All Greece Select 25/50 Index. The fund attempts to achieve its mission by investing in the securities of the underlying index and associated American Depositary Receipts ("ADRs") and Global Depositary Receipts ("GDRs"). Although the ETF top weights the financial sector (30.36%), Greece's leading telecommunications company Hellenic Telecommunications Organization S.A. (HLTOY) commands the top individual stock allocation at 13.17%. Daily dollar volume liquidity of nearly $5 million, along with a 0.12% spread, keep trading costs competitive. Longer-term holding costs also remain reasonable, with the fund charging a 0.59% management fee. GREK yields 2.23% and has gained almost 30% on the year, making it Europe's best-performing country ETF so far in 2019 as of Oct. 8, 2019.
GREK shares have trended higher over the past nine months, apart from steep retracements in May and August, as investors grow increasingly confident that Greece’s new center-right prime minister Kyriakos Mitsotakis can foster economic growth. More recently, the price has dipped below a period of month-long consolidation but finds significant support from a crucial trendline dating back to late 2018. Traders who play the pullback entry should aim to exit with a profit somewhere between $9.75 and $10, where price may run into resistance from the fund's summer highs. Manage risk by placing a stop-loss order underneath the uptrend line and lifting it to the breakeven point if price closes above September's high at $9.54.