EUFN: European Financial Stocks Remain Cheap (NASDAQ:EUFN)

iShares MSCI Europe Financials ETF (NASDAQ:EUFN) is an exchange-traded fund that offers exposure to financial companies in Europe. The fund’s benchmark is the MSCI Europe Financials Index, and carries an expense ratio of 0.48% (in line with plenty of other niche funds offered by iShares, but not cheap by any means). The fund is popular, with $1.38 billion in assets under management as of March 11, 2022. That is in light of net inflows over the past year, although most recently EUFN has seen significant outflows.

As illustrated above, net inflows over the past year sum to circa +$377 million, however, in the two weeks commencing February 28 and March 7, net outflows were -$222 million and -$211 million, respectively. These outflows are not especially particular, though; the broader market has sold off, and EUFN has suffered similarly.

Yet EUFN is not expensive. The fund’s price/book ratio was 0.85x as of March 10, 2022, i.e., the average share price across EUFN’s portfolio was below net asset value (1.00x). Usually discounts to net asset value arise from poor returns on equity, and European banks are generally not expected to generate high returns on equity.

Still, if we look to the most recent factsheet for EUFN’s benchmark index, reported as of February 28, 2022, the price/book ratio then of 0.88x compares to the forward price/earnings ratio (estimated) of 9.43x. Dividing the former into the latter gives us an estimated…