ETFs
How the changing political landscape may affect European ETFs
In recent weeks, India’s national elections have received widespread media coverage. And the American presidential campaign is itself an evolving story. But advisors and investors considering exposure to Europe would do well to consider the potential effects of recent elections on that continent.
A few days ago, during the European Union (EU) parliamentary elections, the right-wing National Rally (RN) surged forward, prompting French President Emmanuel Macron to dissolve Parliament and convene elections. early elections. It is possible that Macron will remain president. But he will likely have to find a way to work with more conservative factions.
The snap elections in France follow the accession to power of conservative leaders in Italy and the Netherlands. This indicates that some large Eurozone countries could move to the right. However, this did not harm the WisdomTree Europe Hedged Equity Fund (HEDJ B). Over the past two years – a period in which some conservative leaders have risen to power in Europe – the HEDJ has increased by 37.2%. This represents a 760 basis point advantage over the unhedged MSCI EMU Index.
The HEDJ can evolve thanks to political changes
Some experts believe that in many developed economies the impact of elections is short-term. They believe that efficient markets should operate based on fundamentals, not based on who holds the titles of president or prime minister. There is certainly some truth in that. But advisers and investors cannot ignore the fact that a wind of political change could be blowing in Europe.
Concerning France and its effects on the HEDJ, a political change is potentially underway. In fact, the fund allocates 23.29% of its weight to French stocks. And this is relevant considering that Macron can remain in power but must govern from the center.
“If the RN succeeds not only in winning, but also in forming a majority coalition government, then we can expect cohabitation with Macron remaining president. This means that he will retain some control (via his veto) over certain national security issues, but ultimately the national agenda will change and be led by Jordan Bardella, president of the RN,” according to Schröders.
Content continues below advertisement
Populism, the big winner
As far as the HEDJ is concerned, it should also be recognized that populism was the big winner in the European parliamentary elections. This includes the Netherlands and France, which constitute the ETF’s largest and third largest geographic exposures, respectively. No one knows whether Germany – the ETF’s second-highest-weighted country – will also shift seriously to the right. This is a possibility that investors should prepare for.
“Provisional results show that the big winners in the 2024 elections are the right-wing nationalist populist parties. The biggest winner was the far-right nationalist group Identity and Democracy (ID), which is expected to increase the number of seats held by 18%. The European Conservatives and Reformists (ECR) are also right-wing and have made significant gains alongside the largest party, the European People’s Party (EPP),” Schroders added.
This article was prepared as part of WisdomTree’s paid general sponsorship of VettaFi | ETF Trends. This specific content and any opinions expressed therein belong solely to VettaFi and do not reflect the opinion or analysis of WisdomTree, its employees or its affiliates. Content published on VettaFi | ETF Trends is provided for educational purposes only and should not be considered investment or tax advice. For investment or tax advice, please consult a financial professional.
WisdomTree is an independent company, not affiliated with VettaFi | ETF Trends. WisdomTree was not involved in the preparation of the content provided by VettaFi | ETF Trends. It neither guarantees nor assumes any responsibility for its content.
For more news, information and analysis, visit Modern Alpha Channel.