Broader US markets have been volatile in May. Many investors are concerned about rich equity valuations, and wonder whether markets have already recognized much of the good news regarding economic recovery after the pandemic. They are also watching inflation levels and the extent of a potential policy response by the Fed.
In order to diversify, investors could be enticed to look at other asset classes or themes in the market. Therefore, today we’ll introduce two exchange-traded funds (ETFs) that could appeal to readers who want to focus on global markets.
1. First Trust International Equity Opportunities ETF
- Current Price: $66.91
- 52-Week Range: $44.20 - $79.31
- Dividend Yield: 0.19%
- Expense Ratio: 0.70% per year
The First Trust International Equity Opportunities ETF (NASDAQ:FPXI) provides exposure to a range of non-US, liquid companies that have recently had IPOs, as well as spin-offs in both emerging and developed countries. Fund managers typically invest in these firms soon after they become public for up to approximately three years.
We previously covered companies that have recently gone public either through an initial public offering (IPO) or a reverse-merger with a special purpose acquisition company (SPAC). Our focus was mostly US-based businesses.
FPXI, which has 50 holdings, follows the IPOX International Index. The fund started trading in November 2014. The largest 10 holdings constitute more than 42% of FPXI’s net assets, which stand around $1.2 billion.
The top sector allocation is consumer discretionary (26.59%), followed by information technology (15.98%), communications services (15.47%), health care (12.29%), financials (9.11%), energy (7.46%), industrials (6.93) and consumer staples (6.17%).
Among the leading companies are the energy giant Saudi Aramco (SE:2222), online payments platform Adyen (AS:ADYEN) (OTC:ADYEY), Singapore-based internet platform provider Sea (NYSE:SE) (NYSE:SE), Japanese telecommunications group Softbank (T:9984) (OTC:SFTBY) and China-based residential property management company Country Garden Holdings Company (HK:2007) (OTC:CTRYY).
In terms of country allocations, China heads the roster with 22.37%. Next in line are Japan (11.09%), Saudi Arabia (9.46%), Sweden (9.14%), the Netherlands (8.64%) and Germany (8.62%).
Although the fund hit an all-time high of $79.31 on Feb. 16, so far this year, it is down over 3%. Yet, in the past year, FPXI is up close to 50%. A further decline toward $64 or below would improve the margin of safety for buy-and-hold investors.
First Trust also offers another similar thematic fund, namely the First Trust IPOX Europe Equity Opportunities ETF (NASDAQ:FPXE). It invests in the 100 largest companies that are economically tied to Europe and recently had European IPOs. So far in the year, FPXE has returned about 33%.
2. SPDR® EURO STOXX 50 ETF
- Current Price: $37.32
- 52-Week Range: $24.29 - 41.27
- Dividend Yield: 1.65%
- Expense Ratio: 0.29% per year
The SPDR® EURO STOXX 50 ETF (NYSE:FEZ) invests in 50 large-cap European companies. Since its inception in October 2002, net assets have reached $2.54 billion.
FEZ follows the Euro STOXX 50 Index. The most important sectors are consumer discretionary (18.55%), IT (15.93%), industrials (13.92%), financials (13.65%) and materials (9.84%). In terms of geographical breakdown, EU members France, Germany and the Netherlands have the highest contribution, with more than 80%.
The top 10 stock comprise 41% of the fund. Semiconductor giant ASML (AS:ASML) (NASDAQ:ASML), luxury heavyweight LVMH Moet Hennessy Louis Vuitton (PA:LVMH) (OTC:LVMUY), industrial gas and engineering group Linde (DE:LINI) (NYSE:LIN), and software company SAP (DE:SAPG) (NYSE:SAP) lead the names in the roster.
Year-to-date, the fund is up 16% and saw a multi-year high in recent days. Earlier in the year, the vaccine rollout was initially off to a slow start in most of continental Europe. But the past several weeks have seen the efforts gather pace. As a result, the number of new COVID-19 cases has fallen, and many countries have been gradually opening up their economies. The positive sentiment has provided tailwinds for many European shares.
Yet, given that FEZ is also up about 56% in the past 12 months, short-term profit-taking could soon be in the cards. We believe a decline toward $45 or less would improve the margin of safety. Overall, we like the fund as it makes it easy to invest in some of the top European names without having to select companies individually.