1 Wall Street Analyst Says to Buy European Stocks. This ETF Is an Easy Way to Do That

The U.S. stock market is whipsawing up and down thanks to geopolitical issues around tariffs. To be fair, the same types of swings are happening all over the world. But one Wall Street pro thinks now is the time to make a fairly radical shift in the allocation of your portfolio toward Europe. Here's how you can easily do that with one exchange-traded fund (ETF).

Throw out the investing script

Andrea DiCenso, a portfolio manager and strategist at Loomis, Sayles, recently suggested a drastic change to the 60/40 portfolio in an interview with Bloomberg. The 60/40 breakdown is usually 60% equities and 40% bonds. And for most U.S. investors the 60% allocated to stocks will probably be mostly or entirely in U.S. companies.

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DiCenso's suggestion is instead to put 60% in a basket of global bonds and 40% into European equities. That's a massive change and probably not the right call for most investors, since it would likely require scrapping your entire investment plan. It is probably better to stick largely with your current investment approach than to toss the baby out with the bathwater and start all over again.

However, that doesn't mean that you can't fiddle around at the edges. The deeper view of DiCenso's suggestion about European equities, and foreign investments more broadly, is around growth. The fear is that the U.S. could be on the verge of a period of slower growth. Meanwhile, European countries are talking about increasing investment in their own economies, and that, DiCenso believes, could lead to more rapid growth. If that sounds interesting to you, adding some exposure to Europe wouldn't be a bad call.

The easy play on European equities

Europe is very different from the United States in that it is made up of many different countries, and each has its own specific nuances to consider. So if you want to add some European stocks into your mix, choose a broad-based ETF like Vanguard FTSE Europe ETF (NYSEMKT: VGK) that covers all the developed countries in Europe.

VGK Total Return Price data by YCharts

But that's not the only option by a long shot. You could also choose iShares Europe ETF (NYSEMKT: IEV) or SPDR Portfolio Europe ETF (NYSEMKT: SPEU). Both of these exchange-traded funds do basically the same thing; they invest in developed European markets.

The cheapest European ETF on this list is Vanguard FTSE Europe ETF, with an expense ratio of just 0.06%. SPDR Portfolio Europe ETF is pretty close to that with an expense ratio of 0.07%. And iShares Europe ETF is by far the most expensive to own with an expense ratio of 0.61%. Given the higher costs of iShares Europe ETF, you would probably expect it to be the worst performer, but that's not the case. It falls between the Vanguard ETF and the SPDR ETF.

VGK Total Return Price data by YCharts

Investors can choose whichever European ETF suits their fancy. However, given the lower cost and better historical performance of Vanguard FTSE Europe ETF, it is probably the best of the bunch for most investors.

Don't go overboard

So what's the right amount of your portfolio to put into European equities? Selling out of the U.S. and going all in on Europe is probably too extreme a move. Perhaps 10% or 20% of your equity component would make sense. Many of the largest European companies do business with the United States, so you aren't exactly making a dramatic portfolio shift by adding direct investments in Europe to your portfolio mix. But that's the point. This is more about hedging your bets than throwing caution to the wind.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.