iShares, the exchange-traded fund business at BlackRock Asset Management Canada, has launched two funds giving to access European exposure while hedging exposure to foreign currencies.
The iShares MSCI Europe IMI Index ETF (XEU) seeks to track the MSCI Europe IMI, while the iShares MSCI Europe IMI Index ETF (CAD-Hedged) (XEH) seeks to track the MSCI Europe IMI 100 per cent Hedged to CAD Index.
Both indices capture large, mid and small-cap representation across the developed countries in Europe, and include 1,315 constituent equities.
XEH’s index is hedged back to Canadian dollars.
The new funds’ management fees are 0.25 per cent.
XEU began trading on 22 April and XEH is expected to begin trading on 24 April.
“Canadian investors are increasingly using iShares funds to express their views, and our new options for Europe provide low-cost access to equity exposure outside of North America,” says Mary Anne Wiley, managing director, head of iShares Canada. “We believe investors should focus on areas of relative value like markets in Europe as diversifiers to their asset allocation strategy.”
Diversification beyond North America is one of the key themes BlackRock has identified as vital to investors for 2014. With Canadian and US equity markets on track for modest growth this year, investors should consider looking beyond the familiar as they seek opportunities to grow their portfolios.
European developed markets offer equity prices that look reasonably valued compared to North American equities, and dividend yields are an attractive growth opportunity for Canadian investors.
The MSCI Europe IMI’s current price-to-equity ratio (P/E) stands at 17.71, compared with a P/E of 19.9 for the MSCI USA IMI and 20.7 for the MSCI Canada IMI.
Meanwhile, dividend yield for the MSCI Europe IMI stands at 3.09 per cent, compared with 1.91 per cent and 2.87 per cent for the U.S. and Canada MSCI indexes, respectively.
While providing exposure to growth outside of North America, XEU and XEH offer significant diversification opportunities to Canadian investors who may be heavily weighted in domestic equities.
The Canadian stock market is highly concentrated in three sectors: financials, energy and materials. By contrast, the MSCI Europe IMI covers key economic sectors that are underweighted in Canadian indexes, including industrials (e.g. Siemens AG, Airbus Group N.V. and Rolls-Royce Holdings PLC), healthcare (e.g. Roche Holding AG, Novartis AG, GlaxoSmithKline PLC) and consumer discretionary (e.g. BMW AG, Daimler AG).
The iShares funds track indexes that cover approximately 99 per cent of free float-adjusted market capitalisation across European developed-market countries, allowing investors to explore ex-North America growth, and mitigate cyclical and economic risk through geographic and sector diversification.