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ETF Specialist

An Attractive European ETF for Intrepid Investors

Although many risks remain, this European equity ETF offers investors a good way to profit if a recovery gains traction.

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Europe is fraught with risk. Unemployment is close to 11%, fiscal imbalances in Spain and Italy threaten to drag down the rest of the eurozone, and austerity measures could keep demand soft for years. Yet, recent Markit Purchasing Manager Index data suggests that the region is starting to stabilize. Macroeconomic news is typically quickly incorporated into stock prices. However,  Vanguard FTSE Europe ETF (VGK) is one of the best options for investors who believe that this nascent recovery will gain traction. While not for the faint of heart, its holdings are trading at reasonable valuations and may grow faster than their U.S. counterparts as conditions in Europe improve.

The fund invests in large- and mid-cap stocks based in 16 developed European markets, representing most of the investable market. However, British and Swiss stocks account for nearly half the portfolio. While the fund has limited direct exposure to the weakest members of the eurozone, the health of these markets may have a disproportionate influence on its performance. This is the cheapest broad European stock fund with one of the most comprehensive portfolios available. Consequently, it is our pick for passive exposure to European equities and is a suitable core holding. The fund's largest holdings are quality multinational names, such as  Novartis (NVS),  Vodafone (VOD),  Total (TOT), and  Nestle (NSRGY).

Alex Bryan does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.