Germany ETF Attracts Inflows, Outperforming Broader Europe Funds

ETF Trends

The iShares MSCI Germany (EWG) is one of the top-selling ETFs the past week, gathering nearly $400 million, with investors favoring Europe’s safest country.

EWG has seen inflows of about $383 million since May 30, according to IndexUniverse data.

The Germany has endured the recent pullback in European stock markets relatively well. EWG is unchanged the past month while iShares Europe ETF (IEV) is off about 2%.

Germany, the world’s fifth-largest economy, is seen as the strongest country in the Eurozone and usually outperforms when the region’s debt crisis flares up as investors seek stability.

“Germany has weathered the 2008 global financial crisis and subsequent sovereign debt crisis better than many of its Eurozone peers,” says Morningstar analyst Alex Bryan in a profile of EWG. “Germany is in better shape than most members of the Eurozone. Its unemployment rate is under 6%, inflation is low, and its government deficit is one of the lowest in Europe. As a result of Germany’s safe-haven status, the German companies enjoy lower borrowing costs than many of their peers.”

The Germany economy is relatively strong but there is a risk that the sovereign debt crisis could spill into Germany, he added. “If conditions in Spain or Italy deteriorate and the German government maintains its commitment to the Eurozone, German taxpayers could be on the hook to help bail out these countries,” the analyst wrote.

EWG has posted a total return of about 42% for the trailing 12 months on signs the Eurozone debt crisis is easing. IEV, the broad European ETF, is up 34% over the same period.

Yet European stock markets were under pressure Thursday with Spain leading the way lower after the European Central Bank held interest rates steady and refrained from announcing additional stimulus measures.

ECB President Mario Draghi said policy makers discussed additional stimulus policies and stand ready to act if needed, Bloomberg News reported.

“We had an ample discussion of the various measures, non-standard measures that could be utilized to repair the transmission policy,” Draghi said. “We see no reason to act on all these fronts. These are measures we keep on the shelf.”

The ECB left rates unchanged at 0.5%.

In currency markets, CurrencyShares Euro Trust (FXE) rose more than 1% on Thursday.

iShares MSCI Germany

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germany-etf

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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