In its latest move to prevent an economic fallout from coronavirus, the European Central Bank (ECB)has announced a new, expanded program to buy up to 750 billion euros ($820 billion) in government and private sector bonds as well as commercial paper by year-end. The new announcement followed the central bank’s previous stimulus (announced only last week) to support bank lending and the expansion of its asset purchase program by 120 billion euros ($135.28 billion).
However, the ECB did not cut its deposit rate further into the negative territory. The ECB’s Pandemic Emergency Purchase Programme would be “aimed at keeping borrowing costs down to support the outlook for Europe’s economy and make sure the bank’s low benchmark rates keep getting through to businesses and consumers.” The latest move probably followed the rise in bond yields in heavily-indebted Italy.
Apart from the latest virus-beating stimulus, there is existing ECB monetary easing program, which entails 20 billion euros per month in existing bond purchases, up to 2.3 trillion euros in negative interest credit offered to banks and a negative rate on deposits it takes from commercial banks of minus 0.5%.
The move should benefit European economies and stocks over the long term, notwithstanding the current panic selling. Notably, last week was the worst for European stocks since 2008. The week saw the rapid spread of coronavirus and the U.S. announcement of travel restrictions to Europe.
WHO has now declared Europe the "epicentre" of the pandemic, which originated in China. Some EU states have witnessed a record number of one-day death tolls. There have been rampant border controls and stringent lockdown measures.
Against this backdrop, we highlight a few Europe-based ETFs (both equities and bonds) that could gain from the ECB.
Pacer Trendpilot European Index ETF PTEU
The underlying Pacer Trendpilot European Index uses an objective, rules-based methodology implementing systematic trend-following strategy directing exposure (i) 100% to the FTSE Eurobloc Ind, (ii) 50% to the FTSE Eurobloc Ind & 50% to 3-Month US T-bills, or (iii) 100% to 3-Month US T-bills, depending on relative performance of FTSE Eurobloc TR Ind & its 200-business day historical simple moving average. The fund charges 65 bps in fees. It yields 3.97% annually.
iShares Edge MSCI Min Vol Europe ETF EUMV
The underlying MSCI Europe Minimum Volatility Index comprises European-developed market equities that have lower volatility characteristics relative to the broader European developed equity markets. The fund charges 25 bps in fees.
iShares International Treasury Bond ETF IGOV
The fund has sizable exposure to Europe. A decline in long-term bond yields amid safe-haven trade may benefit the fund as bond prices are inversely related to yields.
WisdomTree Europe Quality Dividend Growth Fund EUDG
The underlying WisdomTree Europe Quality Dividend Growth Index is a fundamentally-weighted index that measures the performance of dividend-paying common stocks with growth characteristics selected from the WisdomTree International Equity Index. United Kingdom (24.1%), Switzerland (16.9%) and France (15.8%) are the top three geographic locations. The fund yields 3.18% annually (read: 4 Europe ETFs That Put Up a Great Fight Last Week).
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iShares Edge MSCI Min Vol Europe ETF (EUMV): ETF Research Reports
WisdomTree Europe Quality Dividend Growth ETF (EUDG): ETF Research Reports
iShares International Treasury Bond ETF (IGOV): ETF Research Reports
Pacer Trendpilot European Index ETF (PTEU): ETF Research Reports
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Zacks Investment Research