Which European Strategies Work Now?

With the news flow we’ve seen thus far in 2017, it would have been difficult to predict any broad-based strategies focused on European equities being up 20% or more around the half-year point. Yet:¹

European equity indexes have significantly outperformed U.S. equities, giving credence to the belief that after elections ended up outside of the “disaster” scenarios, broad-based equity recovery has occurred.

With the euro up 8.62% year-to-date, many investors have been looking for unhedged exposures.

WisdomTree has two strategies, the WisdomTree Europe Domestic Economy Index and the WisdomTree Europe Quality Dividend Growth Index, that delivered close to 20% returns in the first half of 2017, beating the established market capitalization-weighted benchmarks.

Two Ways to Win in First Half 2017: Domestic Economy & Quality Dividend Growth

Two Ways to Win in First Half 2017: Domestic Economy & Quality Dividend Growth

For definitions of terms in the chart, visit our glossary.

The MSCI EMU Index and the FTSE Developed Europe All Cap Index are two of the most widely followed benchmarks of European equity performance for U.S. investors utilizing exchange-traded funds (ETFs). Both have handily outperformed the S&P 500 Index during the first half of 2017, something not many were predicting in the face of all the elections at the beginning of the year.

The WisdomTree Europe Domestic Economy Index, notable for its focus on companies that derive more than 50% of their revenues from INSIDE Europe, delivered a 20.6% return over this period. We’ve generally heard that the European thesis in 2017 is dependent upon activity in Europe turning up and looking stronger. This Index is designed to tap into that type of exposure, whereas both the MSCI EMU and FTSE Developed Europe All Cap Indexes focus predominantly on large caps, many of which are multinationals.

The WisdomTree Europe Quality Dividend Growth Index delivered a 19.5% return over this period. Instead of having a focus on where revenues are generated, this Index focuses on quality that leads to, most notably, a large under-weight to Financials. It’s intriguing how this compares to a large over-weight in Financials for the WisdomTree Europe Domestic Economy Index and that both Indexes have delivered strongly in 2017.