Featured Image

Quality European Stocks Come Out of the Initial Earnings Gate Better Than Expected

  • Last week, the ALPS | O’Shares Europe Quality Dividend ETF (OEUR) gained 3.94%, boosted by a better-than-feared earnings season so far for quality European stocks. Going forward, falling natural gas prices may act as a tailwind for European stocks into year-end, as European natural gas storage levels are nearly 93% full entering the winter season with Russia now only accounting for 7% of EU supply vs. 40% pre-Ukraine invasion, per Credit Suisse.

  • Leading OEUR’s Information Technology sector last week, ASML Holding N.V. (ASML NA, 5.01% weight*), rallied over 16% after the semiconductor equipment maker beat 3Q earnings expectations and boosted its 4Q guidance with the company stating global demand for semiconductors continues to outpace supply. SAP SE (SAP GR, 5.52% weight*), an enterprise software company, also gained 4.45% last week after JPMorgan named the company its top pick in the European software space based on the growth potential for its cloud-based software.

  • Industrials sector names in OEUR also had a strong week on falling natural gas (power) prices and strong earnings. Automation technology conglomerate, ABB Limited (ABBN SW, 2.06% weight*), rose nearly 6% last week after reporting record margins in its 3Q earnings release and additionally announcing expectations to meet 2023 profitability goals one year ahead of schedule, driven by easing supply chain woes and higher product prices. Industrial power company, Atlas Copco AB (ATCOA SS, 1.78% weight*), rallied over 4% last week after reporting record revenues, orders and profits in 3Q22 with positive commentary from analysts. A.P. Mollner (MAERSKB DC, 1.35% weight*), the largest global shipping and logistics company, also gained over 4% last week on reports of shipping port productivity returning to normal, with supply chain lag times and shipping logjams trending back to 2019 (pre-pandemic) levels.

  • Other notable quality gainers in OEUR last week included Consumer Discretionary name, Stellantis NV (STLA IM, 1.16% weight*), moving 5.09% higher on European car sales rising 7.9% in September, boosting the automaker’s electric vehicle (EV) sales expectations, and Michelin (ML FP, 1.15% weight*), rising over 4% last week on the strong European car sales potentially boosting its vehicle tire sales.

“We think the fall in the natural gas price is a reason to re-consider Europe. Europe still looks very cheap when we look at sector adjusted price-to-earnings ratios (even considering our stress tests). For now, owing to the weakness of the Euro, relative earning revisions have remained surprisingly strong.”

– Credit Suisse Research, October 21, 2022

Falling Energy Prices and Attractive Valuations May Present Catalysts for European Quality Stocks
  • Expectations for a deep recession across Europe (EU) have stemmed from high energy prices, as rising energy imports and an unsustainable spike in electricity prices have erased nearly 7% off of European Gross Domestic Product (GDP) over a 2-year period, per Credit Suisse. This has led to European stock underperformance over the same period with relative valuations against U.S. stocks falling to lows last seen during the Global Financial Crisis.

  • With the recent sharp drop in current and forward natural gas prices and EU natural gas supplies trending upward into the winter season, the negative correlation of European stocks to natural gas prices presents a potential mean reversion opportunity for quality European stocks to rally relative to the U.S. on falling natural gas prices.

  • Despite the negative sentiment compressing valuations recently, positive earnings revisions for European stocks have been strong heading into 4Q, mostly on a weak Euro potentially boosting exports, while positive earnings revisions on equities ex-Europe have been mostly negative. Implying a better-than-feared outlook for Europe, earnings revisions are nearly 20% higher than aggregated global equity revisions, per Credit Suisse.

Positive Earnings Revisions in Europe Lead Globally20221024-chart

  • OEUR’s portfolio consisting of high quality, dividend-paying stocks in Europe exhibits an attractive price-to-earnings (P/E) valuation of 11.14x, while the largest 50 European stocks trades at a P/E multiple of 12.99x, as measured by the Euro Stoxx 50 Index.

  • Falling energy (electricity) prices in the EU, amidst potentially falling broader inflation upon a global recession, could act as a catalyst for quality European companies to rerate higher relative to global equities.

* Weight in OEUR as of 10/21/2022

Performance Summary
  1 Week YTD 1 Y 3 Y
ALPS | O’Shares Europe Quality Dividend ETF (OEUR) 3.94% -28.10% -24.86% -7.23%
O’Shares Europe Quality Dividend Index1 3.26% -28.67% -27.87% -9.44%
EURO STOXX 50 Net Return USD Index 2.49% -29.78% -26.24% -4.80%

Source: Bloomberg L.P., as of 10/21/2022

Performance data quoted represents past performance. Past performance is no guarantee of future results so that shares, when redeemed, may be worth more or less than their original cost. The investment return and principal value will fluctuate. Current performance may be higher or lower than the performance quoted. For current month-end performance call 1-866-759-5679 or visit www.alpsfunds.com. Performance includes reinvested distributions and capital gains.

For standardized performance please click here.

Performance data prior to 6/21/2022 reflects the performance of the Fund as managed under the OSI ETF Trust.

1 The O’Shares Europe Quality Dividend Index performance information reflects the blended performance of the FTSE Developed Europe Qual/Vol/Yield 5% Capped Factor Index through 5/31/2020 and the O’Shares Europe Quality Dividend Index thereafter.

Top 10 Holdings
SAP SE 5.52%   Roche Holding AG 4.61%
LVMH Moet Hennessy Louis Vuitton SE 5.12%   Novo Nordisk A/S 4.53%
ASML Holding NV 5.01%   Schneider Electric SE 3.42%
Novartis AG 5.01%   Wolters Kluwer NV 2.81%
Nestle SA 4.93%   Unilever PLC 2.71%

As of 10/21/2022, subject to change

Important Disclosures & Definitions

An investor should consider the investment objectives, risks, charges and expenses carefully before investing. To obtain a prospectus containing this and other information, call 1-866-759-5679 or visit www.alpsfunds.com. Read the prospectus carefully before investing.

Shares are not individually redeemable. Investors buy and sell shares on a secondary market. Only market makers or “authorized participants” may trade directly with the Fund, typically in blocks of 5,000, 25,000 or 50,000 shares.

Performance data quoted represents past performance. Past performance is no guarantee of future results; current performance may be higher or lower than performance quoted.

All investments are subject to risks, including the loss of money and the possible loss of the entire principal amount invested. Additional information regarding the risks of this investment is available in the prospectus.

Effective 6/17/2022, the O’Shares Europe Quality Dividend ETF reorganized into the ALPS | O’Shares Europe Quality Dividend ETF.

Concentration in a particular industry or sector will subject the Fund to loss due to adverse occurrences that may affect that industry or sector. The Fund may use derivatives which may involve risks different from, or greater than, those associated with more traditional investments. A Fund’s emphasis on dividend-paying stocks involves the risk that such stocks may fall out of favor with investors and underperform the market. Also, a company may reduce or eliminate its dividend after the Fund’s purchase of such a company’s securities. Returns on investments in foreign securities could be more volatile than, or trail the returns on, investments in US securities. Exposures to foreign securities entail special risks, including political, diplomatic, economic, foreign market and trading risks. In addition, a Fund’s investments in securities denominated in other currencies could decline due to changes in local currency relative to the value of the US dollar, which may affect the Fund’s returns.

The Fund employs a “passive management” - or indexing - investment approach and seeks investment results that correspond (before fees and expenses) generally to the performance of its underlying index. Unlike many investment companies, the Fund is not “actively” managed. Therefore, it would not necessarily sell or buy a security unless that security is removed from or added to the underlying index, respectively.

Price/Earnings (P/E) Ratio: a valuation ratio of a company's current share price compared to its per-share earnings.

EURO STOXX 50 Net Return USD Index: represents the performance of the 50 largest companies among the 20 supersectors in terms of free-float market cap in Eurozone countries.

FTSE Developed Europe Qual/Vol/Yield 5% Capped Factor Index: designed to measure the performance of publicly-listed large-capitalization and mid-capitalization dividend-paying issuers in Europe that meet certain requirements for market capitalization, liquidity, high quality, low volatility and dividend yield.

O’Shares Europe Quality Dividend Index: designed to reflect the performance of publicly-listed large-capitalization and mid-capitalization dividend-paying issuers in Europe that meet certain market capitalization, liquidity, high quality, low volatility and high dividend yield thresholds. The quality and low volatility requirements are designed to reduce exposure to high dividend equities that have experienced large price declines.

One may not invest directly in an index.

ALPS Advisors, Inc. and ALPS Portfolio Solutions Distributor, Inc., affiliated entities, are unaffiliated with O’Shares Investments.

ALPS Portfolio Solutions Distributor, Inc. is the distributor for the Fund.

Not FDIC Insured • No Bank Guarantee • May Lose Value

OUS000148 01/23/2023

Recent ETF Spotlights