European stocks, which have lagged their U.S. counterparts dramatically since the bull market began in 2009, are closing the gap. In the first five months of 2017, the MSCI Europe index returned 16.6%—nearly double the return of Standard & Poor’s 500-stock index.
What’s behind Europe’s resurgence? For one thing, European stocks are relatively cheap, trading, on average, at 15 times estimated year-ahead earnings, compared with 18 for the S&P 500. Moreover, European companies are likely to deliver better profit gains than U.S. companies this year. Wall Street sees European companies boosting earnings by 22% in 2017, twice the rate of U.S. firms.
The improved outlook stems from growing optimism about the global economy. The International Monetary Fund expects a 3.5% boost in global growth this year and a 3.6% uptick in 2018. Analysts say that should disproportionately benefit European firms, which generate nearly half of their sales outside of the Continent.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
A simple way to play Europe is with a low-cost index fund, such as Vanguard European Stock (VEURX). Its annual expense ratio is just 0.26%. For that, you get exposure to more than 1,100 stocks in 15 developed countries. The portfolio tilts toward giants, with Nestlé and drugmakers Roche and Novartis occupying the top three spots.
For a more streamlined approach, consider Brown Advisory WMC Strategic European Equity (BAFHX), which recently held 60 mostly large firms. Manager C. Dirk Enderlein, of Wellington Management, seeks firms with the potential to generate above-average growth in earnings and cash flow. He prefers companies that have technological advantages over their peers. Recent top holdings were financial-services giant UBS, consumer-products firm Unilever and brewer Heineken.
You’re not likely to recognize most of the stocks in Columbia Acorn European (CAEAX), which at last report held 49 stocks with an average market value of $3 billion. The fund, which invests mostly in developed Western European nations, favors expanding businesses priced cheaply compared to potential earnings. The fund’s Class A shares levy a 5.75% sales charge but are available load-free at several online brokers.
Editor’s Note: The original version of this article that ran in Kiplinger’s Personal Finance recommended Invesco European Small Company, a fund that is currently closed to new investors.
-
Seven Steps Couples Should Take Before Blending Their FinancesGetting on the same page now can ensure you remain successful throughout your relationship.
-
Charitable Remainder Trust: The Stretch IRA AlternativeThe SECURE Act killed the stretch IRA, but a properly constructed charitable remainder trust can deliver similar benefits, with some caveats.
-
A Spotlight on the Pacific States: The Kiplinger LetterThe Kiplinger Letter Most Pacific states are seeing good job growth in multiple sectors including tourism, hospitality, and construction.
-
The Robots Are Coming... But Not For a WhileThe Kiplinger Letter There’s excitement in the tech sector over the potential of humanoid robots, but widespread adoption is likely to be years away.
-
Farmers Face Another Tough Year As Costs Continue to Climb: The Kiplinger LetterThe Kiplinger Letter Farm income is expected to decline for a second year, while costs continue to up-end farm profitability.
-
A Spotlight on the Mountain States: The Kiplinger LetterThe Kiplinger Letter Most Mountain states are seeing good job growth in multiple sectors from healthcare, energy, and semiconductor production to farming and government.
-
A Spotlight on the Plains States: The Kiplinger LetterThe Kiplinger Letter The labor market is tight in the Plains states and outside of healthcare and construction most sectors are flat or down.
-
Kiplinger's Commodities ForecastThe Kiplinger Letter Following a rocky few years for markets, we expect commodities to be less volatile in 2024, as a post-pandemic normal finally emerges.
-
Growth Stalls in China As Property Market Continues to Struggle: The Kiplinger LetterThe Kiplinger Letter The property market remains a major drag on Chinese growth, with sales now 50% below their peak.
-
A Spotlight on the South Central States: The Kiplinger LetterThe Kiplinger Letter Outside of the tech sector slump, job growth in the South Central states remains buoyant, with healthcare, construction and business investment going strong.
