European stocks and the relevant exchange traded funds listed in the US have been getting bum wraps this year, but with the Euro and other developed Europe currencies weakening and the dollar rising, the time could be right to reconsider Europe ETFs.
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For active, risk-tolerant, short-term traders, the Direxion Daily FTSE Europe 3x Bull Shares (EURL) could be a compelling option. EURL, which debuted in January 2014, attempts to deliver three times the daily performance of the FTSE Developed Europe Index, the underlying benchmark for one of the largest US-listed, non-leveraged Europe ETFs.
EURL's underlying index can hold shares of companies from Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy,the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom.
EURL's index devotes nearly 31 percent of its weight to the UK, which bolsters the credibility of EURL as a short-term trade because UK stocks have been soaring post-Brexit.
With the Federal Reserve potentially nearing an interest rate hike before the end of this year, some US companies could face a strong dollar headwind while their Eurozone rivals could get the benefit of a weak euro tailwind, possibly lifting Europe ETFs along the way. Although EURL is not a dedicated Eurozone ETF, its index allocates almost 28 percent of its weight to Germany and France, the Eurozone's two largest economies. Other Eurozone economies combine for almost 19 percent of the index's weight.
Adding to the case for EURL is the fact that, at the end of October about a dozen non-leveraged Europe ETFs reside within three percent of their 52-week highs, confirming that investors have recently been bidding European stocks higher.
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Getting back to the UK, EURL's largest country allocation, Brexit was a problem and residual effects could still be felt, but recent data points from the UK have been encouraging.
For example, the UK posted GDP growth of 0.5 percent for the three months following the Brexit vote. That is down from 0.7 percent growth year over year, but well ahead of economists' estimates of 0.1 percent to 0.3 percent growth.
It was also reported last week that a third runway will be added at London's Heathrow Airport, which could add 61 billion pounds and 77,000 jobs to the local economy. If infrastructure spending positive economic data are any indications, the Eurozone could make for a good investment.
And for investors thinking more about the short term, EURL presents a good opportunity. Though if youre not convinced of the bullish trends in Europe and interested in the downside, the Direxion Daily European Financials Bear 1x Shares (EUFS), which seeks a return that is-100% of the return ofits benchmark indexfor a single day, according to Direxion, could also be an option.
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