Switzerland ETF: Europe’s Beacons Of Stability

ETF Trends

In what has been another raucous year for Eurozone economic headlines, some ETFs tracking the region’s riskier countries have outperformed their steadier counterparts.

At least over the past four or five weeks as ETFs devoted to Greece and Italy, among others, have easily outpaced rival Germany and Nordic ETFs. [Europe's Trash ETFs Become Treasure Troves]

Investors looking for the alluring combination of stellar returns without the risk of embracing one of the PIIGS nations have some options, but Switzerland stands out. That much is proven by the iShares MSCI Switzerland Capped Index Fund (EWL) , which has gained 14% year-to-date.

EWL, the largest Switzerland ETF, has delivered more than double returns of the iShares MSCI Germany Index Fund (EWG) and outperformed the iShares MSCI Sweden Index Fund (EWD) by more than 400 basis points this year. [A Switzerland ETF For Developed Market Exposure]

EWL’s success this year is attributable to several factors. First, Switzerland is part of a shrinking group of countries that still have the prestigious AAA credit rating. The U.S., Japan and France, just to name a few, cannot say the same.

Switzerland is not a member of the common currency program and the Swiss National Bank has helped insulate the country from the Eurozone’s economic travails by pegging the franc to the euro.

SNB “has shielded the economy from the effects of the slump in the euro region with its currency ceiling of 1.20 francs per euro. Such a policy has helped ensure Switzerland suffered only one quarter of contraction since the cap was imposed in September 2011, and an unemployment rate about a quarter of that in the 17-nation bloc,” reports Catherine Bosley for Bloomberg.

Ahead of Switzerland’s first-quarter GDP report due out May 30, economists are expecting growth of 0.2%. Not jaw-dropping, but better than the 0.1% increase Germany delivered in the first quarter.

Switzerland’s durability remains in tact, which could be a boon for EWL, a fact underscored by comments from one major ratings agency. Switzerland is home”very high economic strength, as reflected in the country’s open, highly developed and diversified economy that is both a major financial center and an important producer of chemicals and pharmaceuticals,” according to Moody’s Investors Service, Bloomberg reported.

Drilling down on EWL, an ETF with an annual expense ratio of 0.5% and $979.3 million in assets under management, investors will find an ETF suitable for those with conservative postures. The fund allocates a combined 51.5% of its weight to health care and consumer staples stocks. In other words, although it tracks non-U.S. stocks, EWL has benefited from investors’ preference for low-beta sectors such as staples and health care. [Take A Defensive Approach With A Health Care ETF]

And that explains the near-term rub faced by EWL. If stocks start a new leg higher on the back of a cyclical rotation, low-beta sectors could fall out of favor and there are slight signs that scenario is already playing out. On the other hand, investors looking for exposure to Europe without the volatility of Greece and Italy or the slack growth of Germany or France could find a home with EWL.

iShares MSCI Switzerland

View photo



ETF Trends editorial team contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, 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.

View Comments (0)