iShares S&P Europe 350 Index (ETF) (IEV)

It’s been hard to be mistaken investing abroad, as mutual and exchange-traded funds that hold foreign stocks, have time and again outperformed their domestic counterparts. For 2007 also, the scenario looks positive, but given the vagueness about interest rates in the U.S., it will be wiser for a prudent investor, to move some funds out of U.S. and volatile emerging markets into Europe, which envisages an improved operating environment.

Endorsing the same, iShares Standard and Poors Europe 350 Index (IEV) lays out a perfect platform for the investors. IEV attempts to match the performance of the Standard and Poors Europe 350 Index, designed to track stocks from across the developed countries of Europe. With a very small mid-cap stake, the fund is endowed with heavy exposure in financials, energy, utilities and industrials sector and seems to be a good investment proposition, as is well diversified geographically as well as industry-wise.

Lately, Europe's economic growth has surpassed expectations; GDP growth in the euro area and the EU accelerated to an annualized rate of 3.5% in 2006, the highest growth rate since 2000. Going forward, an anticipated high domestic demand in 2007 and increased resilience of European economies, should come handy to attract the foreign investments.

Beside the usual hymn of diversification, adding European exposure to the portfolio will help to garner the advantage of a weakening dollar and strengthening euro. When European Central Bank appears willing to raise interest rates, the Federal Reserve, on the other hand, is on a stabilizing path, pushing some investors toward European opportunities. Also favoring the European equities are central banks globally, diversifying away from dollar reserves, with China in particular looking for non-dollar holdings.

Moreover, IEV has been a solid performer and has tracked the returns of its index reasonably well over time. Its one-year returns for 2006 is 32.7% as against 33.69% reported by the benchmark index. With expense ratio standing at 0.60%, which is more than double the Vanguard mutual fund's ratio, the fund attract some cost disadvantages. Otherwise, given its exposure to large-cap European stocks, the fundamentals augur well for IEV.