First Trust Launches New Europe ETF Tracking Enhanced Index - ETF News And Commentary

One of the renowned ETF issuers, First Trust, recently introduced a product in the U.S. market targeting the Euro zone. The launched product – First Trust Eurozone AlphaDEX ETF (FEUZ) – hit the market on October 21. Below, we highlight the product in detail:

FEUZ in Focus
 
The enhanced fund tracks the NASDAQ AlphaDEX Eurozone Index to provide exposure to companies from the Euro zone countries. The fund employs the AlphaDEX stock selection methodology while picking stocks for its portfolio. Both growth and value factors are considered in the stock selection procedure. 

FEUZ is a highly diversified fund with no stock accounting for more than 1.22% of the portfolio. Among individual holdings, Neste Oil Oyj takes the top spot with 1.22% weight, followed by Bank of Ireland and Natixis with respectively 1.21% and 1.20% exposure. In total, the fund holds about 149 stocks.

Sector wise, Financials gets the highest exposure with 21.12% of the portfolio. Industrials, Materials and Utilities, Consumer Discretionary and Health Care also get double-digit investments, while information Technology gets the least exposure with only 4.86% of the basket.

As far as country exposure goes, France (22.5%) gets the top priority while Germany (21.6%), Italy (10.82%) and Spain (10.10%) take up the next three positions. The fund charges about 80 bps in fees.
 
How Does it Fit in a Portfolio?

The fund is a good choice for investors seeking exposure to the Euro zone. The European Central Bank (ECB) recently made a surprise move by cutting interest rates to a record low and introducing a negative deposit rate. Also the ECB indicated stimulus measures like buying corporate bonds to free the Euro zone from deflation fears and to boost economic growth (read:3 European ETFs Worth Considering on ECB Measures).

If this was not enough, about 80% of ECB banks cleared the latest stress test. This sort of macroeconomic backdrop should boost investment and growth in the stagnant Euro zone. This is likely to further lift European stocks, which saw an ascent last year celebrating the Euro zone's exit from recession. So, the launch of the new Euro zone ETF seems well-timed (read: Euro Zone Gets QE Hints, 3 ETFs to Buy on Stimulus Hopes).

ETF Competition

The newly launched ETF will have to face competition from Europe-focused ETFs like SPDR EURO STOXX 50 (FEZ). FEZ is one of the most popular ETFs in the space with an asset base of $4.3 billion and average trading volume of 2.3 million shares. The fund tracks the EURO STOXX 50 Index and charges 29 basis points as fee which is lower than the aforementioned product.

iShares MSCI EMU ETF (EZU) is another popular fund in the space with an asset base of $7.7 billion and trades in a good volume of more than 5.6 million shares a day. The fund tracks the MSCI EMU Index, which measures the performance of equities from countries within the European Monetary Union. The fund charges 48 basis points as fees (see all European Equity ETF here).

Thus, the newly launched fund is costlier than the most popular ETFs in the space. So, to garner investors' money, the fund needs to sell its enhanced approach and equal-weighted strategy, and hope for some outperformance over traditional benchmarks as well.

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FT-EUROZN ALPHD (FEUZ): ETF Research Reports
 
SPDR-EU STX 50 FEZ: ETF Research Reports
 
ISHARS-EMU IDX EZU: ETF Research Reports
 
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