Brexit Trigger Means Opportunity in This ETF

Today is a historic one across the pond, as Britain has made “Brexit” official by invoking a provision in European law known as Article 50.

Britain’s European Union (EU) ambassador formally triggered what is likely to be a two-year process of the United Kingdom extricating itself from membership in the European Union. And the Brits did it in characteristically subtle fashion by simply handing a letter to EU Council President Donald Tusk.

In comments following the official Article 50 trigger, Prime Minister Theresa May said that this was “an historic moment from which there can be no turning back.”

For investors here at home, the official Brexit trigger does have implications for specific exchange-traded funds (ETFs) pegged to Europe.

Over the past several weeks, our ETF Talk segment has featured several European ETFs. One reason why is because I am bullish on this market segment. However, the Brexit situation does pose a few things to think about when assessing which European ETFs might be best.

To get a better sense of the pros and cons of European ETFs, I turned to my friend and colleague Tom Essaye of The Sevens Report. Tom is pretty much an expert at all things involving the markets, but he has a particularly interesting read on Europe. Like me, he’s bullish on the segment and for the same basic reasons.

First, there is compelling relative valuation in European equities vs. U.S. stocks. Second, there continues to be central bank support from the European Central Bank, which has pursued “easy” money polices compared to the Fed. Finally, the political risks of investing in Europe, in my view, have been far too overstated.

Valuation wise, Tom explained to me that the S&P 500 now trades at the top end of historical valuations at 18.25 times 2017 earnings per share (EPS), and 17.75 times 2018 EPS. Conversely, the MSCI Europe Index is trading at 15.1 times 2017 earnings, and 13.8 times 2018 earnings. That’s a 17% and 22% discount to the U.S. index valuations, respectively.

As for central bank support, the European Central Bank still is using quantitative easing (QE), and it still plans to buy some 60 billion euros worth of bonds through December of this year. That will continue to support the EU economy, and help earnings and inflation move higher, which is European-equity positive.

Second, HEDJ is by far the most-liquid European currency hedged ETF out there. And, for those who are concerned about the any possible Brexit exposure and its negative influence on British stocks, you?re in luck, as HEDJ has virtually no British exposure (just 0.37% of holdings).

Apparently, the smart money agrees with Tom and I, as HEDJ is up 8.65% in just the first three months of the year.

If you?d like to find out more about how to profit not only in Europe, but in U.S. stocks, bonds, commodities and countries around the world with a proven plan that?s been working for investors for 40 years, then I invite you to check out my Successful ETF Investing advisory service, today!