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How to invest in the EU - Accuvest Global Advisors

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HowВ toВ investВ inВ theВ EUВ LookingВ atВ whichВ EUВ countriesВ offerВ theВ bestВ investmentВ opportunityВ givenВ theВ ECBВ actionsВ В TheEuropeanCentralBank(ECB)tookactionlastweektoincreasebankliquidityandlendingwithhopes
ofstimulatingtheeconomyandfightingdeflation.TherewereacoupleofkeypointsfromMarioDraghi’s
commentsthatinvestorsshouldbeawareof:
1. TheECBcutratesonallthreepolicyratesandbecameoneofthefirstmajorcentralbankstohavea
negativedepositrate.Thismeansthatbanks,whicharekeepingexcesscashattheECB,willhaveto
paythemtodoso. 2. Short‐Term and Long‐Term liquidity will remain high given the new Targeted Long‐Term
Refinancing Option (TLTRO) and the fixed rate full allotment procedure. These are in place to
supportbanklendingtohouseholdsandnon‐financialcorporations 3. TheECBstatedthattheyarepreparingforquantitativeeasingwithapotentialpurchaseprogramof
AssetbackedSecurities(ABS).В In2013wesawcountriesthathadheavystimulusandcentralbankactivityprovidethestrongestequity
marketreturns.WhiletheECBcontinuesandpreparestotakemoreaction,wethinkthatcertaincountries
withinintheEUprovideamuchmoremeaningfulreturnopportunitythantakinganindexedapproachto
theentireregion.EuropeETFshavealreadyattractedmorethan$10billionthisyear.That'smorethan20
percent of all inflows going into a category that makes up 3 percent of all ETF assets. According to
Bloomberg,EuropeanETFshaveattracted$27billionoverthelast12months.AsnewsoftheECBactions
worktheirwayintoinvestmentportfolios,wethinkthatasecondroundofflowsintoEuropewillfollow.В В PriceВ momentumВ shouldВ beВ reviewedВ carefullyВ TheflowtoEuropeanETFspickedupsignificantmomentuminthesecondhalfof2013followingaspikein
performance.Aswelookoverthelast12monthsofreturnsfromEUcountries,itisimportanttonotethat
Spain(EWP)andItaly(EWI)havesignificantlyoutperformedtherestoftheEU,while.Austria(EWO)and
Poland(EPOL)havebeenthebiggestlaggards.
EUCountryReturnsinUSD(Last12Months)
150
Austria
140
France
130
Germany
120
Italy
110
Netherlands
Poland
100
Spain
90
80
20130607
Sweden
20130927
20140117
AccuvestGlobalAdvisors
20140509
3100OakRoad#380•WalnutCreek,California94597|T:925.930.2882|F:925.930.2885
accuvest.com|accuvestblog.com|@accuvest|compliance@accuvest.com
UK
Valuations and Fundamentals need to be considered IhearfromalotofinvestorsthatEuropestilloffersagood�value’opportunity.WhileitistruethattheEU
tradesataslightdiscounttotheMSCIACWIIndexandtheMSCIUSAIndex,eachcountrywithintheregion
isnotagood�value’opportunity.Asaresultofgreatperformance,Italyisthemostexpensivecountrywe
rankintheEU.Inadditiontoarichvaluation,thecountryhassignificantlyweakerfundamentalsthanthe
regionasawhole.Inthechartbelow(sortedbyperformanceoverthelast12months),itiseasyto
visualizeboththedisparityinreturns,aswellasPEandROEwithintheregion.
EUCountryMetricsasofJune6,2014
PerformanceLast12Months
43.26%В 37.99%В 22.50%В 21.86%В 21.27%В 21.10%В 15.23%В 14.71%В 9.93%В 7.68%В Country
PE
ROE
SPAIN ITALY FRANCE GERMANY NETHERLANDS EU UNITED KINGDOM SWEDEN POLAND AUSTRIA 21.1 30.2 20.2 16.5 19.0 17.5 15.1 16.6 14.4 16.5 7.4 3.7 7.6 10.9 9.8 10.1 13.1 13.6 9.3 5.8  Investment Implications Giventhedifferencesonacountrybycountrybasis,webelievethattakingasingle‐county
approachoffersinvestorsthebestwaytoaccesstheEU.Takingthemultifactorapproachusedin
DavidGarff’swhitepaperhelpsusdeterminewhichcountriesofferthebestrelativeattractiveness.
TheJunerankingsoftheEUcountriesarebelow,whilethefullrankingsareavailablehere.Based
onthecurrentrankingswethinkthatSpain,Sweden(EWD),andtheUnitedKingdom(FKU,EWU)
havethemostpotentialtobenefitfromongoingECBactionsandpotentialQE.Bothcountriesare
membersoftheEU,butarenotEurobased.
EUCountryRankings‐June2014
Country
Fundamental
Momentum
Risk
Valuation
30В 1В 19В 17В Spain
15В 14В 5В 19В Sweden
23В 23В 4В 11В UnitedKingdom
26В 15В 8В 14В Germany
32В 2В 23В 26В Italy
27В 13В 18В 22В France
21В 29В 16В 8В Poland
31В 32В 6В 6В Austria
19В 20В 20В 24В Netherlands
AccuvestGlobalAdvisors
3100OakRoad#380•WalnutCreek,California94597|T:925.930.2882|F:925.930.2885
accuvest.com|accuvestblog.com|@accuvest|compliance@accuvest.com
DisclosuresВ This brochure is strictly informational and should be used for research use only. This brochure should not be construed as
advertisingmaterial.Theopinionsexpressedarenotintendedtoprovideinvestingorotheradviceorguidancewithrespecttothe
mattersaddressedinthisbrochure.Allrelevantfacts,includingindividualcircumstances,needtobeconsideredbythereaderto
arrive at investment conclusions to comply with matters addressed in this brochure. Charts and information are sourced from
Accuvest Global Advisors and the MSCI, unless otherwise noted. Remember that investing involves risks, as the value of your
investmentwillfluctuateovertimeandyoumaygainorlosemoney.Youshouldseekadvicefromyourfinancialadviserbefore
makinginvestmentdecisions.InvestmentrisksarebornesolelybytheinvestorandnotbyAGA.AGAisanindependentinvestment
advisorregisteredwiththeSEC.Alldisclosures,marketingbrochures,andsupplementalfirmsheetsareavailableuponrequest.
AccuvestGlobalAdvisors
3100OakRoad#380•WalnutCreek,California94597|T:925.930.2882|F:925.930.2885
accuvest.com|accuvestblog.com|@accuvest|compliance@accuvest.com
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