2 Funds That Could Bring Home Double-Digit Profits by Year-End

The headlines around the world today revolved around the politics here at home with the partial shutdown of the federal government.

The shutdown is expected to be short-lived, but no one can say with certainty how long it will last or what effect it will have on the markets and the economy. We could see violent swings in either direction without the market really going anywhere until the political dust settles.

In the meantime, however, there is no reason why traders can't get out of town for profits, and right now is a great time to consider Europe.

During the past several months, a confluence of positive fundamental and technical factors has created a raging bull market in large-cap European equities. That bull market has attracted investment capital from all around the globe into the Old World, and I don't think the party is anywhere near over.

On the fundamental front, we've seen improved euro zone business activity with the latest readings from Markit's Manufacturing Purchasing Managers' Index (PMI). Factory activity expanded for the third consecutive month in September, and stronger demand allowed manufacturers to raise prices for the first time since mid-2012.

In addition to the improved business climate, consumer confidence in the region has improved, rising for the fourth straight month to a two-year high. Add in a strengthening euro, improving employment conditions around the region and interest rates that remain attractively low, and you can see why the bulls are betting on Europe.

On the technical front, we've seen big buying in many of Europe's biggest conglomerates since late June, and that's caused a big run higher in two of my favorite European ETFs, the iShares Europe ETF (NYSE: IEV) and the iShares MSCI EMU Index (NYSE: EZU).

Both of these diversified European equity funds have seen strong moves of late, with IEV logging a 14% gain in the third quarter and EZU vaulting more than 16% over the same period. And both funds offer a small yield -- 2.75% for IEV and 2.65% for EZU.

IEV tracks the S&P Europe 350 Index, which is similar to the S&P 500 here at home in the sense that you get exposure to the largest and most established European-based companies. Nestle, Novartis (NYSE: NVS), HSBC Holdings (NYSE: HBC) and Vodafone (NASDAQ: VOD) are among the top holdings in IEV.

Europe ETF IEV Chart

EZU gives you exposure to the countries in Europe that use the euro as its chief currency. With a total of nearly 250 companies in its current holdings, you get a lot of diversification with this fund. Top holdings include Total SA (NYSE: TOT), Sanofi (NYSE: SNY), Bayer (OTC: BAYRY) and Siemens Aktiengesellschaft (NYSE: SI), to name just a few.

Europe ETF EZU Chart

Essentially, if you are bullish on Europe as I am, then both IEV and EZU are good buys right now.

Recommended Trade Setups:

-- Buy IEV at the market price
-- Set stop-loss at $40.90, approximately 8% below the current price
-- Set initial price target at $51 for a potential 15% gain by year-end

-- Buy EZU at the market price
-- Set stop-loss at $35.15, approximately 8% below the current price
-- Set initial price target at $43.75 for a potential 15% gain by year-end

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