Playing Europe’s Rebound

NYSE: VODNew York, February 13th ( – Well, maybe we should have said Europe’s "potential" rebound because any market observer that doesn’t live in cave knows, Europe’s sovereign debt calamity is far from being solved. The good news is that European policymakers are scheduled to meet in Brussels on Wednesday to finalize another bailout package for Greece and the belief seems to be that if a Greek default can be prevented, that will be enough to keep traders from hammering Italian and Portuguese debt as well.


Searching for an ETF with which to play a possible European rebound isn’t hard at all. Nearly every Euro Zone member has a U.S.-listed ETF devoted to it, but investors looking for a broader, more liquid approach might do well to take a look at the Vanguard MSCI Europe ETF (NYSE: VGK).


To be sure, VGK offers broad swath European exposure. The ETF is home to almost 460 stocks from Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom.


Yes, that lineup includes every one of the PIIGS, but it should be noted stocks from those countries comprise a relatively small percentage of VGK’s weight. VGK’s top-10 holdings represent almost 23% of the fund’s weight and within that group are some of the European stocks U.S. investors, particularly dividend seekers, will want to consider. Royal Dutch Shell (NYSE: RDS-A), BP (NYSE: BP) and Total (NYSE: TOT), Europe’s three largest oil companies, are all found among VGK’s top-10 lineup as are dividend plays like Nestle (PK: NSRGY), Vodafone (NYSE: VOD) and British American Tobacco (NYSE: BTI).


VGK is up almost 10% year-to-date, but even with that bullish run, investors are still pouring money into the ETF. On Monday, ETF Channel reported VGK saw a $76.2 million dollar week-over-week inflow. That indicates some market participants are betting European stocks have more gains in store and it’s the second week in row in which VGK has experienced net inflows. It may sound trite, but people don’t buy ETFs they think are going to fall, right?


VGK’s chart isn’t perfect, but it’s showing improvement. The ETF is at the very least trading above its 200-day moving average and that area looks like support. From current levels, VGK has some open space to run back to the $48-$50 area before encountering next resistance. From there, a return to the $54-$55 could be in the offing.


Bottom line: VGK’s lineup is littered with blue-chip stocks that have been battered to some extent not because they’re bad companies, but because they’re EUROPEAN companies. That scenario could change for the better if the European Union can convince global investors it has a legitimate plan in place to skirt sovereign debt catastrophe.


The vitals: VGK has an expense ratio of just 0.14% making it cheaper than 92% of comparable ETFs. The fund has $6.1 billion in assets under management, making it one of the largest ETFs tracking Europe.

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