Many single-country ETFs have delivered outsized performance relative to the U.S. stock market this year, and each for different reasons.
There’s no question that investors have been embracing international equity funds this year, which now represent roughly $1 in every $5 invested in U.S.-listed ETFs.
Here we rank the top six best-performing single-country plays in ascending order, and tell you why these funds have been delivering big returns:
6. The iShares MSCI Finland Capped ETF (EFNL | C-93) is up 34.8 percent year-to-date
Investors are increasingly confident that Europe has emerged from its worst recession since the eurozone was formed 14 years ago. Moreover, Northern Europe was always somewhat insulated from the southern European economies most crippled by the continent’s debt crisis.
By and large, improving economic indicators in the region have shown a strengthening level of consumer confidence, even while unemployment rates remain steady and government spending in general remains tight.
EFNL is one of three northern Europe ETFs to rank high in terms of year-to-date performances. Again, these countries are gaining on a forging Eurozone economic recovery that seems to have shaken off recessionary pressures for good earlier this year.
The fund is still extremely small with under $15 million in total assets, but it does a great job capturing the Finnish equities universe.
5. The iShares MSCI Denmark Capped ETF ( EDEN | C-76 ) is up 35.9 percent
Like EFNL, EDEN too is racing higher as the Eurozone bounces from its worst recession in 14 years.
The fund tracks a market-cap-weighted index of Danish stocks, and is the only ETF to offer focused exposure to Denmark.
Also, like its Finnish counterpart, EDEN remains a very small fund with about $17 million in assets, and currently is on IndexUniverse’s list of ETFs facing high closure risk.
4. The WisdomTree Japan Hedged Equity ETF (DXJ | B-45) is up 37.7 percent, year-to-date
DXJ is by far the most popular ETF this year, having attracted more than $8.7 billion in net new assets year-to-date. DXJ has been rising sharply this year on the heels of a Japanese economic recovery fueled by an aggressive quantitative easing program there.
Prime Minister Shinzo Abe's ambitious "Abenomics" expansionary plan has definitely attracted investors who are hoping for some upside. The Nikkei 225 is now up roughly 51 percent year-to-date—the best-performing stock market in the world this year.
A lot has been said about DXJ's quick rise to success following the implementation of “Abenomics” earlier this year. Indeed, Japan's ongoing quantitative easing program is the most aggressive the market has yet seen.
What has helped DXJ’s gains and asset gathering has been its first-to-market status—one that has given it a competitive edge in the asset gathering game. The fund’s revised methodology late last year that essentially tilted the portfolio’s exposure toward exporters also has helped it. Export-focused companies are the very same that benefit the most from a weakening yen.
DXJ also takes off the table exposure to currency risk, something that has proven worthwhile in a year when the yen has plummeted against the U.S. dollar. DXJ is now an $11 billion fund.
3. The iShares MSCI Ireland Capped ETF (EIRL | D-81) is up 42.7 percent year-to-date
EIRL tracks a market-cap-weighted index of Irish firms and offers a very good proxy for broad-based exposure to Ireland-listed stocks. The fund has been gaining upward momentum as Ireland readies itself to exit a massive bailout program as its banking system strengthens.
EIRL is heavily allocated to basic materials and consumer staples, and only 10 percent of its portfolio is tied to financial stocks.
Still, the fund has roughly doubled in size this year thanks to a price performance accompanied by $59 million in net asset inflows year-to-date. EIRL now has over $116 million in total assets.
2. The db X-trackers MSCI Japan Hedged Equity ETF (DBJP | B-53) is up 44.3 percent year-to-date
DBJP is a direct competitor to WisdomTree’s DXJ, and like DXJ, has also been riding the rising tide of Japanese equities.
The fund tracks a currency-hedged version of the popular MSCI Japan Index, the same index underlying the hugely popular iShares MSCI Japan ETF (EWJ |B-96), which has more than $13.5 billion in total assets.
DBJP now has over $251 million tied to its currency-hedged portfolio.
1. The PowerShares Golden Dragon China (PGJ | B-25) is up 57.7 percent year-to-date.
PGJ is a broad-based China ETF , but its stellar performance so far in 2013 speaks more to China’s booming tech sector than to economic growth for the world’s second-biggest economy.
That’s because PGJ allocates heavily to technology names. To put a finer point on the fund’s tech tilt, PGJ holds China N-shares, U.S.-listed Chinese firms that frequently are tech-focused.
More specifically, it's loaded up with Internet-centered names, which face restrictions at home on foreign investment. In all, this hot sector makes up seven of the fund’s top 10 holdings, and tech firms as a whole make up close to 50 percent of its weighting.
“It’s important to understand that the Chinese ‘technology’ sector is still very nascent and largely consists of highly volatile Chinese Internet firms listed in the United States,” IndexUniverse’s ETF analyst Dennis Hudachek said in a recent blog.
“It’s also worth pointing out that the Chinese Internet sector has been red-hot in recent months for a few reasons, including the hype surrounding the upcoming initial public offering of one of the largest Internet behemoths on the planet, Alibaba,” Hudachek said.
Charts courtesy of Stockcharts.com
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