3 Reasons Why The FEZ ETF May Not Be A Good Choice

seekingalpha02-22

SPDR® EURO STOXX 50 ETF has delivered acceptable returns of around 16% over the past year but has still lagged the S&P 500 Index.We remain concerned about the unsteady macro backdrop in Europe.We ...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\n3 Reasons Why The FEZ ETF May Not Be A Good Choice\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-02-22 07:01 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4672146-3-reasons-why-the-fez-etf-may-not-be-a-good-choice><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>SPDR® EURO STOXX 50 ETF has delivered acceptable returns of around 16% over the past year but has still lagged the S&P 500 Index.We remain concerned about the unsteady macro backdrop in Europe.We ...</p>\n\n<a href=\"https://seekingalpha.com/article/4672146-3-reasons-why-the-fez-etf-may-not-be-a-good-choice\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"SH","symbol_name":"标普500反向ETF","start_time":0,"source_url":"https://seekingalpha.com/article/4672146-3-reasons-why-the-fez-etf-may-not-be-a-good-choice","article_id":"2413283116","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2413283116","pubTimestamp":1708556461,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"SPDR EURO STOXX 50 ETF has delivered acceptable returns of around 16% over the past year but has still lagged the S&P 500 Index.We remain concerned about the unsteady macro backdrop in Europe.We highl","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"SH":"标普500反向ETF","BK4142":"酒店、度假村与豪华游轮","SDS":"两倍做空标普500ETF","SPXU":"三倍做空标普500ETF",".SPX":"S&P 500 Index","OEX":"标普100","UPRO":"三倍做多标普500ETF","SPY":"标普500ETF","FDN":"First Trust Dow Jones Internet I","BK4585":"ETF&股票定投概念","BK4534":"瑞士信贷持仓","VGK":"MSCI欧洲ETF-Vanguard","OEF":"标普100指数ETF-iShares","BK4559":"巴菲特持仓","BK4550":"红杉资本持仓","BK4588":"碎股","IVV":"标普500指数ETF","CHH":"精选国际酒店","SSO":"两倍做多标普500ETF","FEZ":"SPDR EURO STOXX 50 ETF","BK4581":"高盛持仓","BK4504":"桥水持仓"},"translate_title":"非斯ETF可能不是一个好选择的3个理由","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"FEZ":1,"VGK":1,"SPY":1,"FDN":1,"CHH":1,"OEF":0.6,"UPRO":0.6,"SSO":0.6,"SPXU":0.6,"SH":0.6,"SDS":0.6,"OEX":0.6,"IVV":0.6,"ESmain":0.6,".SPX":0.6},"content_text":"SPDR® EURO STOXX 50 ETF has delivered acceptable returns of around 16% over the past year but has still lagged the S&P 500 Index.We remain concerned about the unsteady macro backdrop in Europe.We highlight how the FEZ ETF compares to the most popular option in this space.The charts suggest a long position at this juncture may not be too prudent.   mikroman6/Moment via Getty Images Introduction The SPDR® EURO STOXX 50 ETF (NYSEARCA:FEZ), with over two decades of trading history, is a $2.8bn sized product that focuses on 50 of the Eurozone’s most prominent and liquid stocks. These stocks are also considered to be leaders within their respective sectors, so there’s a sense of wedging oneself onto the who's who of corporate Europe. Over the past year, FEZ’s performance has been acceptable, with the ETF delivering returns of around 16%, but it hasn’t been as good as what the S&P 500 (SPY) has delivered.   YCharts Regardless, we are not convinced that FEZ will serve as a suitable investment vehicle. Here are some of the reasons driving our cautious stance on FEZ. Unsteady Macro Backdrop It’s important to recognize that the Euro region only narrowly missed a technical recession in H2 last year, and it’s not as though the prospects this year look exceedingly bright, with expected GDP growth of less than a percent. Whilst the impact of relentless monetary tightening continues to choke demand, investors shouldn’t also underestimate the impact of lower fiscal support which was very instrumental in helping the region put up some respectable growth numbers in the aftermath of the pandemic, For instance, note that FEZ’s top regional exposure- France (41% of the holdings are based here) recently trimmed down its GDP expectations for FY24 from previous levels of 1.4% to just 1%, driven mainly by the decision to cut spending by EUR10bn. There’s been a lot of noise around the prospect of rate cuts this year, but investors would do well not to jump the gun as inflation still remains quite stubborn. In Jan this came in at 2.8%, above expectations of 2.7%, whilst the less capricious- core inflation figure is still quite elevated at 3.3%. The impact of the Red Sea disruptions too could likely make its presence felt with higher prices and longer lead times, damaging the supply chain. Allianz Trade believes that these disruptions could potentially stoke European inflation by another 0.7%. Separately, investors should also consider that the ECB is unlikely to change its stance with rates unless we see a meaningful drop-off in wage inflation. On a YoY basis, wages in H2-23 continued to trend around the 4.5-4.7% levels, and it's difficult to imagine a drastic drop, when a lot of regions across Europe are poised to hike minimum wages by anything from 9% to 20% this year.   Bloomberg Compares Poorly To The Most Popular European-themed ETF When prospective investors are weighing various European-themed ETF options, one of the names that will undoubtedly crop up is the Vanguard FTSE Europe ETF (VGK) which appears to be a more well-rounded product. Note that VGK made its debut on the markets roughly 3 years after FEZ’s entry, but yet, the assets under management (AUM) it has managed to accumulate is a whopping 8.6x that of what FEZ has managed. This speaks to the popularity of the product. The popularity will likely be driven by the favorable economics, as well as the superior income angle. VGK can be picked up at an expense ratio of just 0.11% whereas FEZ is less accessible at 0.29%. Since FY20, VGK has also grown its dividends at a much superior CAGR of 17% (as opposed to 14% for FEZ during the same period), and that translates to a better yield of around 37bps.   YCharts Then, whilst FEZ is a more concentrated play on some of the most prominent blue-chip companies across Europe, VGK spreads its tentacles across a much wider base of 1300 odd stocks, which also includes a healthy chunk of mid and small-cap stocks (21% of the portfolio). The market clearly likes VGK’s more diversified pool, and this is reflected in the total return differential of the two products with our focused ETF coming up short. Despite the consistent outperformance, also consider that VGK is still priced at a slight P/E discount (12.76x) to FEZ (12.89x)   YCharts Investors who are also mindful of the volatility quotient of their products will also appreciate VGK’s lower volatility profile over time.   YCharts Closing Thoughts - Unfavorable Technical Picture The image below highlights how FEZ's portfolio of stocks is positioned relative to a diversified portfolio of developed market stocks. It is preferable to pursue FEZ when its relative strength ratio is trading at a substantial discount to the mid-point of its long-term range like it was across much of 2022. In contrast now, the current picture points to some overextension towards the upside, with the ratio now not far from hitting its decade-long peak. This suggests that those looking for beaten-down opportunities across global markets are unlikely to plump for FEZ.   Stockcharts Finally, also consider looking at the monthly price imprints of FEZ’s own chart. What we can see is that since the GFC crisis, FEZ hasn’t really generated any long-term wealth for investors, but rather it has taken the profile of a trading vehicle chopping around within a certain range (the key pivot points of this range have been demarcated by the two black lines). With the SPDR® EURO STOXX 50 ETF now almost hugging the upper boundary of its trading range, we don’t believe a long position here would be the best use of your resources.    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