In a widely anticipated European summit to be held in Brussels on Thursday, June 28, and Friday, June 29, 2018, 27 European leaders will meet to discuss a wide range of topics including migration, security and defense, and reform of Europe's economic and monetary union.
In the summit's shadows, an escalating European Union/U.S. trade war, unfinalized Brexit negotiations and a new populist government in Italy add further uncertainty to the mix. Most analysts and market commentators are divided on Europe's outlook. Boris Schlossberg, managing director of FX Strategy at BK Asset Management, told CNBC, "The flashing light is still very much yellow, and investors should take caution as far as European equities go." (See also: 6 Buying Opportunities for Italy’s Financial Crisis.)
Other investment managers are more upbeat on the Europe story. In reference to FactSet Research Systems Inc. (NYSE: FDS) data that showed the Eurozone economy growing by 2.5% in 2017, Michael Bapis, partner and managing director at the Bapis Group at HighTower Advisors, told CNBC's "Trading Nation" program, "They had the best economic growth in a decade last year, and that hasn't gone away."
Investors who have a view on Europe can use these four exchange-traded funds (ETFs) to play European equities and the euro currency on either the long or short side. (See also: Top 4 European Stock Mutual Funds.)
Launched back in 2000, the iShares MSCI Eurozone ETF attempts to provide similar returns to the MSCI EMU Index. The fund invests the majority of its assets in securities that make up the underlying index. These are large- and mid-capitalization stocks from developed European countries that use the euro as their official currency. The ETF's top five holdings – Total S.A. (NYSE: TOT), SAP SE (NYSE: SAP), Siemens AG (OTC: SIEGY), Bayer AG (OTC: BAYRY) and LVMH Moet Hennessy Louis Vuitton SE (OTC: LVMHF) – account for 11.84% of the portfolio.
The iShares MSCI Eurozone ETF has a massive asset base of $11.41 billion and charges a 0.49% annual management fee that is almost double the category average of 0.26%. As of June 2018, EZU has a disappointing year-to-date (YTD) return of -3.04% but has performed better over the longer term, with five-, three- and one-year annualized returns of 7.63%, 4.12% and 4.59%, respectively. The fund also pays a 1.95% dividend.
The ProShares UltraShort FTSE Europe ETF, formed in 2009, seeks to provide investors with two times (2x) the inverse performance of the FTSE Developed Europe All Cap Index. The benchmark index consists of large-, mid- and small-cap developed market European stocks. EPV invests its assets in derivative products, such as swaps, to provide leveraged returns.
The ProShares UltraShort FTSE Europe ETF has assets under management (AUM) of $19.19 million. The fund's heavy use of derivative products and lack of comparable products to short European equities help to justify its high expense ratio of 0.95%. EPV has a 4.23% YTD return as of June 2018. Short-term traders should use caution when trading EPV; just 7,554 shares change hands each day. (For more, see: Ways You Can Short Europe.)
Created in 2005, the Invesco CurrencyShares Euro Currency ETF is designed to provide a cost-effective way to realize gains in the euro, relative to the U.S. dollar. The fund holds physical euros in a deposit account, therefore accurately reflecting the euro/U.S. dollar (EUR/USD) exchange rate. FXE is highly liquid, with an average daily dollar volume of $36.84 million.
The Invesco CurrencyShares Euro Currency ETF has $274.77 million in net assets and charges an annual management fee of 0.40%. This is right in line with the category average of 0.41%. As of June 2018, the fund has returned 3.62% over the past year, but it is down 2.88% YTD, reflecting broad U.S. dollar strength.
Launched in the midst of the Great Recession in 2008, the ProShares UltraShort Euro ETF seeks to provide twice (2x) the inverse daily performance of the euro spot price versus the U.S. dollar. The fund uses a variety of derivative products to gain short exposure and provide leveraged returns. EUO trades roughly 200,000 shares a day, which offers ample liquidity for both traders and investors who wish to speculate on euro's direction or hedge the currency component of a European stock portfolio.
The ProShares UltraShort Euro ETF has an asset base of $186.11 million and charges investors a 0.95% annual fee. EUO has a five-year return of 3.55%, a three-year return of -2.57% and a YTD return of 6.93% as of June 2018. The ETF rebalances daily, which may distort the fund's performance over the longer term. (For additional reading, check out: 5 Economic Reports That Affect the Euro.)