European stocks are hot right now. The iShares Core MSCI Europe ETF (IEUR -0.08%) has delivered total returns of about 12% year to date and 23% in the past year (as of July 31). Based on Bloomberg research, there are a few reasons why European stocks are booming:
- Better earnings: European companies in the Stoxx 600 index reported 17% earnings growth in the second quarter, the best in four years.
- Lower oil prices: European countries mostly import their oil and gas, which made them vulnerable to higher prices from the Iran conflict. But oil prices have recently fallen, making Europe’s cost of doing business lower — and reducing European inflation.
- Spread of the AI trade: Investors are looking beyond AI stocks and putting money into companies they believe will benefit from future productivity gains and AI profit boosts. European stocks can fit this strategy. Europe is also home to major semiconductor stocks, such as the Netherlands’ ASML Holding.
European stocks don’t always beat America. In the past 10 years, the S&P 500 has strongly outperformed the iShares Core MSCI Europe ETF — about 2 to 1.
IEUR Total Return Level data by YCharts
But if you’re optimistic about Europe’s economy and want to diversify your portfolio away from U.S. tech stocks and the past few years of the AI trade, this international ETF could be a good choice. Let’s take a closer look.
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iShares Core MSCI Europe ETF (IEUR): 1,009 stocks, 12 years of 6.7% annualized returns
The iShares Core MSCI Europe ETF (IEUR) holds 1,009 stocks from 12 European countries. The top markets represented in the ETF are the United Kingdom (22.9% of the fund), France (14.6%), Switzerland (13.8%), Germany (13.2%), and the Netherlands (8.6%).
This international ETF charges a low expense ratio of 0.10% and has paid a strong trailing 12-month dividend yield of 3.11%. That yield is better than many of the best dividend index funds.
What international stocks do you get when you buy this Europe ETF? The fund’s top five stock holdings are:
- ASML Holding: 4.3% of the fund
- HSBC Holdings: 2.2%
- Roche Holding: 1.9%
- Novartis: 1.7%
- Shell: 1.55%
This fund’s top holdings aren’t all AI stocks and major tech names. They include Swiss pharmaceutical companies, a major British international bank, and a Dutch energy giant.
iShares Trust – iShares Core Msci Europe ETF
Today’s Change
(-0.08%) $-0.07
Current Price
$78.18
Key Data Points
AUM
$9.4B
Dividend Yield
3.06%
Expense Ratio
0.10%
Top Holdings
ASML.AS
4.43%
HSBA.L
2.16%
ROP.SW
1.92%
Why buy IEUR…or not
If you’re concerned that America’s stock markets have become too top-heavy with AI stocks, looking at these top stocks shows why this European ETF might be a good way to diversify your portfolio.
But Europe has a long-term track record of underperforming U.S. stocks. This fund has delivered long-term annualized returns of 9.1% over the past five years, 9.8% over the past 10 years, and 6.7% over the past 12 years since its inception in June 2014
If European companies return to their long-term trend of slower growth and lower earnings than those in America, this fund might underperform in the future. If you want to own global stocks without betting too heavily on Europe, the best international ETFs could offer better choices.
HSBC Holdings is an advertising partner of Motley Fool Money. Ben Gran has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML. The Motley Fool recommends HSBC Holdings and Roche Holding AG. The Motley Fool has a disclosure policy.
