(The writer is a Reuters columnist. The opinions expressed are
By John Wasik
CHICAGO, March 3 While the euro zone presents
the unalluring face of sluggish growth, that doesn't mean it
should be neglected. There are pockets of promise that are worth
The reason for the negativity stems from concerns over
conflict in Ukraine and reported euro zone growth at 0.3 percent
in the fourth quarter. Although inflation isn't a problem for
now, almost no analyst is forecasting robust acceleration for
the year in the region, which is expected to expand about 1
percent in 2014.
Beneath this lackluster scenario, though, lie several layers
of companies that are part of Europe's turnaround story. If you
focus on smaller-cap companies and those paying dividends, the
picture is a mite brighter.
Here are two options you might consider:
The FirstTrust Europe AlphaDEX exchange-traded fund,
invests in an equal-weighted portfolio of European stocks, some
of which aren't the name-brand companies found in most
The AlphaDEX holdings include roughly 1-percent positions in
companies like Bank of Piraeus S.A., Faurecia S.A.
and Valeo S.A.. Year-to-date, the fund has
gained 7 percent, compared to 1 percent for the MSCI EAFE Index,
a benchmark of international stocks, through Feb. 28.
By avoiding concentration in many of the mega-caps
dominating most European portfolios, the AlphaDEX has sampled
several smaller companies poised for growth, especially those in
weaker but recovering euro zone economies such as Greece,
Ireland and Spain. The fund charges 0.80 percent annually for
management expenses, which is nearly twice the average for
similar funds. It's a pricey fund, but worth the expense if the
For a more focused approach on small-company stocks,
consider the WisdomTree Europe SmallCap Dividend Fund.
This combines a preference for dividend-paying stocks with a
selection of companies in the bottom 25 percent of market
capitalization of the WisdomTree Europe Dividend Index. The fund
managed to capture the dramatic rebound in stocks from Ireland,
Portugal and Italy.
The WisdomTree fund holds stocks such as Logitech
International SA, Drillisch AG and Unipol
Gruppo Finanziario SpA. The fund has returned 8
percent in the year to date through Feb 28. It charges 0.58
percent for annual expenses.
CAST A WIDER NET
Keep in mind that a small-company play in Europe is no
substitute for a wider approach that would encompass a
broad-based recovery throughout Europe. But widespread
prosperity is slow in coming to the continent and may need more
of a jumpstart.
According to the recently issued "Macro Investment Strategy"
from BMO Private Bank in Chicago, developed international
markets such as the euro zone need some sort of catalyst to move
BMO expects that to come in the form of euro zone
policymakers stimulating their economies this year, "resulting
in equity gains on the back of Euro weakness."
So far this year, the outlook is bright: All the leading
euro zone nations broke out of a recession last year.
Last month, the Markit Flash Eurozone Composite Purchasing
Manager's Index, a gauge of economic activity, was at its
highest point since May 2011. That's a hopeful sign that
manufacturing and job creation will pick up in a low-inflation,
low-interest rate environment. Euro zone manufacturing rose last
month in all four of Europe's biggest economies for the first
time in three years.
Want to cast a wider net among the big-name euro zone
stocks? The iShares Trust S&P Euro holds companies like
Nestle SA, Novartis AG and Roche Holding AG
. The fund is up 2 percent this year through Feb 28. It
charges 0.60 percent in annual management charges.
Another worthy big-basket European fund is the Vanguard FTSE
Europe ETF, which is a much-less expensive way of
holding the biggest European companies. The Vanguard fund holds
many of the same companies in the iShares portfolio, but tracks
a different index and only charges 0.12 percent annually in
management expenses. It's also up 2 percent year to date.
Yet modest gains may not materialize in the euro zone if
other global players such as the U.S. and China slow down. That
fear was a major thorn in the side of mega-cap U.S. stock
returns earlier this year as measured by the S&P 500 index,
which is up about 1 percent this year through Feb. 28 after a
32-percent return last year.
Thinking long-term, the broader the strategy, the more you
will have exposure to the largest global companies based in
Europe and the continuing recovery, which is still a work in
(Editing by Beth Pinsker)