BlackRock's Core Europe ETF Swells as Bulls Return to the Region

  • U.S. fund focused on Europe is up 155% since December
  • Firms from BlackRock to Citigroup overweight European stocks

BlackRock Inc.’s “Core” branded U.S. exchange-traded fund that’s focused on Europe has been on a tear.

Assets invested in the $2.2 billion iShares Core MSCI Europe ETF, symbol IEUR, have jumped 155 percent since December, the biggest increase among any U.S. product focused on the region. Assets in its larger competitor, the $12.2 billion Vanguard FTSE Europe ETF, which goes by the symbol VGK, grew about 14 percent over the same span.

Both funds have the same expense ratio and geographic allocation. But there are some tactical differences.

The BlackRock fund is less liquid than the Vanguard one and has no options activity and little short interest, making it more appealing to buy-and-hold investors, according to Sebastian Mercado, a strategist for ETFs at Deutsche Bank AG. Meanwhile, the Vanguard ETF has a high level of liquidity, suggesting it’s most likely used for tactical trades. Both funds are up 21 percent since December.

“IEUR is mostly a core asset allocation product, and it is highly owned by model portfolio providers,” Mercado said. “My opinion is that as sentiment toward Europe has improved since last December, model portfolios have either added European exposure back or increased such exposure.”

An improvement in corporate earnings, waning political risk and stronger economic growth encouraged firms from BlackRock to Deutsche Bank to Citigroup Inc. to upgrade European equities to overweight. IEUR grew by $533 million in March, the most on record, and $278 million in April, suggesting that the sentiment shift could last.

Still, booming asset growth doesn’t necessarily mean an increasing number of investors are piling into the fund. Since March, IEUR’s total shares outstanding have risen in just 10 days -- and almost always by a relatively big percentage, data compiled by Bloomberg show. This suggests that a few investors have been increasing their allocations into the ETF in bulk.

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