Eurozone GDP Growth Pops A Surprise: These ETFs Are Winning The Game

The Eurozone just played a trick, reporting 0.3% year-over-year GDP growth in the second quarter, beating expectations of a slowdown.

ETF investors, however, would be wise to take a closer look. This isn’t a rising-tide-lifts-all-boats affair. In reality, a small subset of ETFs is enjoying the real returns, courtesy of a sharp under-the-hood divergence.

Here’s what the market’s actually telling us, and the ETFs best poised to gain from it.

Also Read: MAGS ETF Hits Record High As Microsoft And Meta Earnings Fuel Tech Rally

Spain And France Are The New Growth Drivers — Not Germany

Let’s cut to the chase: Germany, the economic giant of the Eurozone, stalled in Q2. Italy? In contraction.

But Spain’s 0.7% expansion and France’s 0.3% kick, according to Eurostat, suggest a new regional dynamic fueled by domestic consumption, services, and tourism, rather than exports or industrial clout.

This makes country-specific ETFs an astute tactical move:

• iShares MSCI Spain ETF EWP – has high exposure to financials, consumer services, and infrastructure.
• iShares MSCI France ETF EWQ – bets on luxury, utilities, and local cyclicals.

These economies are not only growing, they’re decoupling from Germany’s industrial malaise.

Sector Stars: Financials And Utilities Are Quietly Climbing

With low interest rates and a strong euro, European banks are proving resilient. Throw in growing domestic consumption and infrastructure planning, and the utilities sector also enters the scene. Two plays to track:

SPDR EURO STOXX 50 ETF FEZ – holds financial titans such as BNP Paribas and Banco Santander. The fund is up almost 10% in the last six months.

This ETF is reaping the rewards of a less export-sensitive climate, which is ideal in an environment where euro appreciation is stealthily eroding trade competitiveness.

The FX Factor: Currency-Hedged ETF Flexing

And talking of the euro, its recent appreciation is a double-edged sword. Wonderful for Eurozone tourists, but a hindrance on USD-denominated returns for U.S. investors in unhedged ETFs.

iShares Currency Hedged MSCI EMU ETF HEZU is one of the hedged heroes that have outperformed unhedged rivals year-to-date, demonstrating that in a world sensitive to FX, hedging is no longer a choice, but rather a source of alpha.

Germany’s $1 Trillion Stimulus Plan — Opportunity Or Mirage?

Germany’s proposed €1 trillion stimulus plan, which targets defense and green infrastructure, might turn the tide someday. For the contrarian and patient, a comeback play is coming.

Funds like Franklin FTSE Germany ETF FLGR are now dragged down by industrial lethargy. But if Berlin unlocks the fiscal sluice gates, they may be among the first to benefit from a boom in capital spending.

What About The Broad ETFs?

Traditional Eurozone ETFs such as iShares MSCI Eurozone ETF EZU and Vanguard FTSE Europe ETF VGK still provide decent diversification. But their significant weights in Germany, Netherlands, and multi-nation exporters render them less sensitive to the domestic-growth narrative unfolding in southern Europe.

This is not a textbook Eurozone recovery. It’s a low-key, patchy rebound spearheaded by secondary players and lower-profile sectors, and the ETF scene appears to be registering the same.

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