iShares MSCI Austria ETF
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It's been a big year for ex-U.S. equities. Both broad international and market specific funds have delivered for ETF investors amid tariff concerns and a weakening U.S. dollar.
It's never fun for a new investor to hear that prospective returns moving forward are bound to be modest. Whether it's due to extended valuations, higher risks, or something else, that's just not what someone wants to hear as they seek to put new money into the financial markets after what's been a strong multi-year... 2 Effective Fixes for Navigating Potentially Lower Expected Market Returns.
Since we last covered it, EWO has delivered a 35% return in 7 months and outperformed Eurozone and Global stocks by 1.46x and 1.30x, respectively. Despite Austria's improving GDP, growth is still expected to lag Europe in a big way, while consumption momentum is slowing and inflation risks are rising. CRE sector pressures are weighing on Austrian banks profitability this year, but EWO's top stock - Erste Group Bank AG is faring much better.
EWO has delivered impressive year-to-date returns, but gains are concentrated in just a few financial stocks, raising concerns about diversification and risk. Austria's economic outlook is challenged by high government debt, slow GDP growth, and potential trade and defense spending pressures, making future performance uncertain. EWO's heavy sector concentration, extreme risk score, and vulnerability to currency fluctuations increase the risk profile compared to broader European or US ETFs.
US stock valuations are extreme, so I'm seeking undervalued opportunities in overlooked markets like Austria. The iShares MSCI Austria ETF (EWO) offers exposure to Austrian stocks, with a 0.50% expense ratio, a 5.13% dividend yield, and only 19 holdings. Many of the holdings are cyclical, including banks, insurance companies, energy firms and construction-related companies.
Investors have ample reason to be concerned about the future of U.S. investment vehicles—mid-May's news of Moody's downgrade of the nation's credit rating and the resultant market shake-up and the lingering threat of dramatic tariff increases chief among them. Unsurprisingly, then, many investors may be likely to increase their exposure to international markets to avoid this turbulence.
The iShares MSCI Austria ETF (EWO) has outperformed global and Eurozone stocks this year with a 16% YTD. We expect EWO to continue to fare well, as GDP growth prospects are now on the up after a long period of contraction, buoyed largely by better consumption trends. EWO offers compelling valuations with a P/E at a 37% discount to European stocks and a 50% discount to global stocks, alongside a 7% yield.
While U.S. investors may be disappointed with this year's choppy first-quarter performance, European investors celebrate double-digit broad index returns. The Euro Stoxx 50 Index is Europe's blue-chip index covering 50 stocks from 11 Eurozone countries.
US equities have outperformed the rest of the world for a long time now. While the US is up 58% on a total return basis during the current bull market, the rest of the world is up 13.5 percentage points less at +44.5%. Looking at the international dividend ETF over a longer time frame, over the last five years, it's up 20.6% in price and more than double that on a total return basis.
House price growth in the eurozone is at its highest since 2006 as housing markets were supported by a limited impact of the pandemic on household finances, rising savings, historically low-interest rates, favorable financing conditions, and changing preferences. The improved macroprudential framework in Europe, increased supply of housing, and bottoming out of interest rates are expected to ease the upward pressures on price growth.
2022 could be a good year for the Austrian economy, although the advent of heightened political risk of late, should be noted. Austrian banks and EWO's top holding in particular are well-placed to flourish.
European stocks exhibited their longest winning streak since 2013, thanks to upbeat corporate earnings and easy money policy. In fact, some Europe ETFs beat the S&P 500 return this year and offer more value.
European stocks have been enjoying their longest winning streak since 2013.
EWO: Austrian Equities Are Cheap
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