At a time when European equities are rebounding and offering compelling value relative to their U.S. counterparts, assessing some unique exchange-traded funds could be a winning strategy for investors looking to add Europe exposure to their portfolios.
Enter the Pacer Trendpilot European Index ETF PTEU. PTEU, which turns two in December, follows the Pacer Trendpilot European Index. That benchmark features large- and mid-cap exposure to stocks in the eurozone nations of Austria, Belgium and Luxembourg, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal and Spain.
PTEU holds nearly 300 stocks and has $50.5 million in assets under management. The ETF uses a unique trend following strategy consisting of three elements that allows investors to participate in European equity upside while dialing back risk in the event of declines.
More About PTEU's Strategy
“When the FTSE Eurozone Total Return Index (EUR) closes above its 200 day simple moving average (200 Day SMA) for five consecutive business days, the exposure of the Index will be 100 percent to the FTSE Eurozone Index (USD),” according to Pacer. “From the equity position, the Index will change to the 50/50 position or the T-Bill position depending on the 50/50 Indicator and the T-Bill Indicator.”
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PTEU's 50/50 indicator moves the ETF to half equity exposure and half allocated to short-term U.S. Treasuries.
“When the FTSE Eurozone Total Return Index (EUR) closes below its 200 Day SMA for five consecutive business days, the exposure of the Index will be 50 percent to the FTSE Eurozone Index (USD) and 50 percent to 3-Month US Treasury bills. From the 50/50 position, the Index will return to the equity position or change to the T-Bill position depending on the Equity Indicator or T-Bill Indicator,” according to Pacer.
If PTEU's underlying index notches five consecutive closes below its 200-day moving average, it shifts to a 100 percent allocation to 3-month U.S. Treasury bills.
The Strategy Works
PTEU hit an all-time high last Friday and is up 25.6 percent year, an advantage of 300 basis points over the MSCI EMU Index.
The ETF allocates 61.5 percent of its combined weight to French and German stocks. Germany and France are the eurozone's two largest economies. Spain and the Netherlands combine for 21.8 percent.
Financial services, industrials and consumer discretionary names are PTEU's three largest sector weights. That trio combines for over half the ETF's lineup.
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