ETF Outlook: Europe’s Equity Strength and the Trump Tariff Threat
European equities outshine US markets as trade tensions simmer—top ETF picks for Canadian investors.
The strong performance of European equities has been a dominant theme throughout the year thus far, as the MSCI Europe Total Return Index has significantly outperformed the MSCI USA Total Return Index. There is a growing belief that this outperformance will not be temporary but will continue throughout the year. A recent Bloomberg article noted that equity strategists believe that the asset class will continue upward.
Political Proclamation or Posturing
With the truce with China now in motion, President Trump has focused on the European Union. As recently as last Friday, May 23rd, President Trump threatened to place a tariff of 50% on European goods starting on June 1st. As reported on Sunday, May 25th, Ursula Von der Leyen, President of the European Commission, says the bloc needs until 9 July to agree a "good deal".
Regarding Europe, the belief is that President Trump’s recent threat is aimed at expediting negotiations. Given how the China tariff escalation scenario netted out, the possibility of 50% tariffs seems highly unlikely.
According to Eurostat, in 2024, the United States was the largest partner for EU exports of goods (20.6%) and the second largest partner for EU imports of goods (13.7%).
Among EU countries, the Netherlands was the largest importer of goods from the United States, and Germany was the largest exporter of goods to the United States.
Though the Europe-U.S. trade relationship has gradually grown over the decade, Europe’s economy is not entirely dependent on the U.S. As captured in a recent memo by MSCI, in looking at the revenue exposure of companies within the MSCI Europe Index and MSCI USA Index.
The constituents of the MSCI Europe Index generated 24.5% of their revenues from the U.S., while approximately 40% of the revenues for the constituents of the MSCI USA Index came from international markets.
This uneven revenue distribution might give Europe a more advantageous position, especially considering Europe’s closer connections to rapidly expanding emerging markets.
Investing in Europe ETFs
For Canadian investors seeking to gain exposure to European equities, there are various ETFs that they can select from.
The CI Europe Hedged Equity Index ETF (Tickers: EHE/EHE.B) seeks to track the price and yield performance of the WisdomTree Europe CAD-Hedged Equity Index, which reflects dividend paying companies domiciled in Europe, have at least $1 billion market capitalization, and derive at least 50% of their revenue in the latest fiscal year from countries outside of Europe.
The iShares MSCI Europe IMI Index ETF (Tickers: XEU/XEH) seeks to replicate the performance of the MSCI Europe Investable Market Index, which reflects large, mid and small cap companies across developed market countries in Europe. The Vanguard FTSE Developed Europe All Cap Index ETF (Ticker: VE) provides a similar exposure, but seeks to track the FTSE Developed Europe All Cap Index.
Finally, for investors with a pure dividend focus, the RBC Quant European Dividend Leaders ETF (Tickers: RPD/RPDH/RPD.U) provides investors with exposure to a portfolio of diversified, high-quality European equity securities that are expected to provide regular income. Utilizing a quantitative multi-factor approach to assess a company’s financial strength, the fund is reflective of firms that are consistent growing dividend payers with an attractive yield.
And it doesn’t stop there—according to the CBOE ETF Market Canada screener, there are more ETFs offering broad Europe or Developed Europe exposure that investors can explore.
Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.
