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Inklings Of Upside To Come For This Europe ETF

by
March 3, 2017 9:45 am
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The SPDR EURO STOXX 50 ETF (NYSE:FEZ) is up almost 4 percent year-to-date and resides less than 1 percent below its 52-week high, impressive points when considering the potential for elevated political volatility surrounding European equity markets this year.

Election Volatility

As is widely known, the Netherlands, usually one of the lower beta eurozone economies, has a national election slated for earlier this month. Many market observers believe the Netherlands election will be the latest affirmation for global populism with Geert Wilders, a candidate some international main stream media sources describe as “far right,” and his anti-European Union party projected to win.

Then there is France, the eurozone's second-largest economy. Trench election is not free of controversy and that could controversy is likely to increase if far-right candidate Marine Le Pen advances to the May run-off. However, polls suggest that while the controversial Le Pen will make it to that run-off, she is not likely to emerge victorious.

Related Link: A Europe ETF To Revisit

Additionally, Germany, the eurozone's largest economy, will hold national elections later this year and Italy, the region's third-largest economy, could do the same. Even with all that, options bulls are warming to the $2.33 billion FEZ.

FEZ And HFEZ

“Finally, as we have spoken about upside call buying in several European Equity ETFs in recent pieces, we have seen FEZ (SPDR Euro STOXX 50) May 34 call activity this week, which has a similar bullish tone to previous trading that we cited earlier this week,” said Street One Financial Vice President Paul Weisbruch in a recent note.

As its name implies, FEZ tracks the widely followed EURO STOXX 50 Index, but the ETF itself holds 54 stocks. By virtue of that being a cap-weighted index with a relatively small number of components, FEZ is dominated by French and German stocks. In that order, those two countries combine for nearly 70 percent of the ETF's weight.

The Netherlands and Italy are FEZ's fourth- and fifth-largest country allocations, respectively, combining for just over 14 percent of the ETF's weight.

FEZ has a currency hedged equivalent, the SPDR EURO STOXX 50 Currency Hedged ETF (NYSE:HFEZ), for investors looking to make a bet on a FEZ-esque product while also betting on weakness for the euro. HFEZ is up 4.2 percent this year.

Image Credit: Geert Wilders By Peter van der Sluijs (Own work) [GFDL or CC BY-SA 4.0-3.0-2.5-2.0-1.0], via Wikimedia Commons

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