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Consider Dividends for European Equity Exposure

Broadly speaking, European equities have long frustrated investors the world over, particularly when measured against the U.S. The laggard status of European stocks relative to U.S. counterparts, in large part, is attributable to European benchmarks lacking significant technology and growth exposure.

Another way of explaining that is when growth stocks trend higher, it’s possible European gauges will be left behind. However, it could be the continent’s value purview that presents investors with the opportunity this year, indicating the ALPS O’Shares Europe Quality Dividend ETF (OEUR) could be an exchange traded fund to consider this year.

To its credit, OEUR beat the MSCI EMU Index by more than 400 basis points over the past 12 months. That could be a sign that when implementing factors, such as low volatility, quality, and payout growth, as does OEUR, the potential exists to generate attractive returns with European stocks.

History Could Be Meaningful for OEUR

OEUR tracks the O’Shares Europe Quality Dividend Index. The fund turns nine years old in August. But some longer-ranging history could prove relevant when evaluating the ETF’s 2024 prospects. For example, some experts see parallels in today’s market environment to 1995.

“At the headline level, the market continued to grind higher on the hope trade of future rate cuts and nearing bottom to earnings revisions, and the eventual return of flows into equities from money market funds,” observed Marina Zavolock, Morgan Stanley’s Chief European Equity Strategist. “Like 1995, we are also seeing a return to M&A from cycle lows, which should further support this rally. Notably, Europe’s low valuation starting point and rerating path so far is exactly in line with the 1995 Fed pivot playbook.”

Zavolock noted she and her team at Morgan Stanley are forecasting 2024 upside of 16% for the MSCI Europe Index. This is factoring in buybacks and dividends, indicating shareholder rewards are a prominent part of the Europe equity equation. That could augur well for ETFs such as OEUR.

“Bringing everything together, our cycle, factor, and thematic analysis, we arrive at 16% total return upside to European equities this year. And overweights on European software, aerospace and defense, diversified financials, pharmaceuticals and telecoms, among other sectors,” said the strategist.

Those sector and industry views are pertinent to OEUR investors. Why? Because the ETF allocates 25.62% of its weight to industrial stocks. Meanwhile, the financial services and technology sectors combine for over 21% of the roster. Healthcare (pharmaceuticals) is the fund’s second-largest sector exposure at nearly 17%.

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vettafi.com is owned by VettaFi LLC (“VettaFi”). VettaFi is the index provider for OEUR, for which it receives an index licensing fee. However, OEUR is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of OEUR. 

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