Following a multi-year run of lagging U.S. stocks, European stocks are off to impressive starts in 2025. Three of the four largest exchange traded funds in the category are sporting double-digit year-to-date gains and the one that isn’t is still up 6.6%, an advantage of 250 basis points over the S&P 500.
Those could be signs that other Europe ETFs, including the ALPS O’Shares Europe Quality Dividend ETF (OEUR), could be worth examining. With a gain of 10.11% since the start of the year, OEUR merits a place in the Europe ETF conversation. In particular, equity income investors looking for some international diversification should consider the fund. It yields 3.40%, or almost triple the 1.18% dividend yield found on the S&P 500.
The fund turns 10 years old in August. It follows the O’Shares Europe Quality Dividend Index. OEUR leverages low volatility and quality factors to deliver a basket of European stocks with attractive dividend growth prospects.
OEUR Could Be Outstanding
There are many factors driving European stocks higher to start 2025. For example, the asset class is finally being rerated against U.S. stocks.
“Entering 2025, European equity valuations were average historically but heavily discounted versus the U.S. at 41% (versus the average 16%), with every sector discounted except technology,” noted Gabriela Santos, global market strategist at J.P. Morgan Asset Management. “This year’s rerating spans multiple sectors, notably health care, communication services, industrials, financials and consumer discretionary. The catalysts for this re-rating have included cyclical and structural factors.”
Lack of technology exposure has long been an indictment of European benchmarks. However, it could be turning in favor of European bourses as the cyclical trade gains momentum.
“Euroarea consumer confidence has moved up for two months, a glimmer of hope that the record-high excess savings cash pile is finally set to be spent. A resolution to the War in Ukraine could serve as another positive confidence shock,” adds Santos.
She points out that bank lending is perking up and the European Central Bank (ECB) has room to further pare rates. That could be beneficial to OEUR because it allocates about 10.4% of its weight to financial stocks. As for improved consume sentiment, that could be a plus for the ETF as well because it devotes about 24% of its roster to the two consumer sectors.
Then there’s the possibility of an uptick in defense spending across the Eurozone – highly relevant to investors mulling OEUR because the ETF allocates almost 29% of its roster to industrial stocks.
“Over the last decade, some European countries like France and Germany have raised defense spending to NATO’s 2% of GDP goal, but more indebted countries have not. European Commission President Ursula Von der Leyen has suggested increasing the goal to 3% of GDP,” observed Santos.
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