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Say Oui To This Year-End Trade Idea

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Say Oui To This Year-End Trade Idea

Yes, that headline indicates that what follows is a discussion on French stocks and the iShares MSCI France Index (ETF) (NYSE: EWQ), the largest France exchange-traded fund listed in New York.

Oui To EWQ

EWQ is more than 20 years old and home to $284 million assets under management. It is the benchmark ETF trading in the United States that follows equities in the eurozone's second-largest economy, but it is arguably overlooked compared to some other single-country Europe ETFs.

EWQ's 2.5 percent year-to-date gain is not mind-blowing, but it is better than the comparable Germany, Italy and Spain ETFs. Additionally, there are reasons for investors to consider EWQ as a trade into the end of the year.

Politics, France And The United States

“The French CAC 40 Index (CAC) is a good representation of what investors are willing to buy. The top one-third of the index consists of Banks, Oil/Gas, Pharmaceuticals, and Aerospace/Defense. Those sectors are tied to the yield move, OPEC recovery, and President-Elect Trump,” said Rareview Macro founder Neil Azous in a note out Wednesday.

Industrial and financial services stocks are EWQ's largest and third-largest sector weights, respectively, combining for over a third of the ETF's weight. Healthcare and energy names combine for about 20 percent of the ETF's weight.

Speaking of politics, France holds national elections next year and President François Hollande will not seek reelection because the French populace is not keen on him. However, investors should note that, for his flaws, Hollande has been good to French stocks, as the CAC 40 has been one of eurozone's best-performing major equity benchmarks since his election in May 2012.

As Azous pointed out, French stocks look appealing on a technical basis.

“The breakout of the annual rectangle, one of the most powerful classic technical patterns, says it all to us — that is, France may be where the year-end 'alpha' exists if you need to rent a long position in European equities,” he said.

That comment refers to the CAC 40, but EWQ is up five percent this week and resides just 0.6 percent below its 52-week high.

 

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