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3 European ETFs Holding Their Ground

Zacks Equity Research

The U.S. economy is showing improvements with solid retail and labor data which are suggesting that the consumer is back on track. However, investors are also growing concerned about the possibility of imminent tapering of bond purchase by the Fed.

This has kept many sectors, including the safe havens like REITs and utilities, under stress and compelled investors to focus on different sectors that haven’t seen as big of a run up.  

In particular, there are plenty of other developed nations—especially in Europe-- that have actually held up strongly this year. These markets may often be overlooked, but are clearly capable of big gains and provide diversification benefits (read: Three Country ETFs Struggling in 2013).

So, for investors seeking foreign plays that are doing well in this market environment, a closer look at any of the following three ETFs could be a great choice. These funds not only managed to stay profitable but have delivered double-digit returns so far in the year. These could make for an interesting trade heading into the second half of 2013.


The Irish economy is showing improvement this year and is gradually recovering from the 2008 crisis thanks to the ongoing fiscal consolidation, reviving domestic demand, and signs of recovery in the banking sector.

These fundamentals suggest that the nation would smoothly exit its bailout program at the end of this year and reflect a political stability and reputation for the country. However, the public debt of Ireland, currently standing at 117% of GDP, is still a major concern. High unemployment rates are also adding to the negative economic sentiment (read: Avoid These 3 Eurozone ETFs This Summer).

Investors should note that Ireland is rapidly trying to emerge as a stronger nation among the other PIIGS members. The nation is expected to post the third highest GDP growth in the Eurozone this year and in the next. The IMF projects Ireland's economy to grow 1.1% this year, 2.2% next year and 2.7% in 2015.

Given the improving trends, Irish market performance has been quite impressive so far this year, not only when compared to other high debt countries but also when juxtaposed against strong markets.

The iShares MSCI Ireland Capped Investable Market Index Fund (EIRL), which tracks the MSCI Ireland Investable Market 25/50 Index, has added roughly 18.8% year-to-date, easily outpacing the other four members of the dubious group as well as the broad Euro region fund by wide margins.

The fund holds 21 securities in the basket, with greater allocation going to the top 10 firms. CRH Plc, Kerry Group and ELAN Corp hold the top three positions with a combined share of 47%. From a sector perspective, the product puts a heavy focus on three sectors – materials, industrials and consumer staples – each making up for at least 24% of assets.

With this focus, the fund has a tilt towards blend securities while growth and value each make up about 23% of the product as well. Beyond this, investors should note that the fund is well spread out across market cap levels as large caps make up roughly 42% of assets, while small/micro cap firms comprise another 49%.

This Irish fund has amassed $57.7 million in its asset base while charging 50 bps in fees per year from investors. In addition, the fund involves extra cost in the form of wide bid/ask spreads thanks to the paltry volume of trading on a daily basis.


Denmark is still struggling to survive a recession and avoid a housing bubble burst like the one we saw in 2008. The Euro-zone accounts for a major portion of Denmark’s exports, leading to a possible account deficit. Also, the country lacks international competitiveness compared to some of its robust neighbors, suggesting that the country could lose out to others in the region.

Despite this, the economy appears to be recovering slowly as it entered into a growth territory in the first quarter, expanding 0.2% on consumer spending.

The country has stable employment levels and healthy public finances, which would keep the interest rates down. Also, the inflation rate remains low. Further, the Nordic region enjoys ample foreign-exchange reserves and a favorable public debt situation (read: Nordic ETF Investing 101).

Based on these strong fundamentals, the Danish economy continues to outpace Southern European nations. According to IMF, the economy would grow 0.8% this year and 1.7% in the next.

As such, investors seeking exposure to the Danish market could find the iShares MSCI Denmark Capped Investable Market Index Fund (EDEN) an exciting pick. The fund is up nearly 13.80% this year, clearly beating the other European ETFs by wide margins. 

The Danish ETF seeks to match the price and yield performance of the MSCI Denmark IMI 25/50 Index, before fees and expenses. The index uses a capping methodology to limit the weight of any single component to a maximum of 25% of the index.

Holding 38 securities in its basket, the product does not offer a huge level of diversification to investors, as it allocates nearly 63% of the assets in the top 10 holdings. Novo Nordisk constitutes the top spot in the basket with the largest share at 21.7% while the next two spots –Danske Bank and Carlsberg – make for a combined 14% share (see more in the Zacks ETF Center).

From a sector look, the fund is skewed towards the healthcare sector with 38.56% share, followed by industrials and financials. It provides broad exposure to multi cap Danish stocks. While large companies account for about 57% of the assets, mid and small cap take the rest of the portion in the basket.

EDEN is unpopular with just $3.6 million in AUM and 10,000 shares in daily average trading volume. It charges slightly high fees of 53 bps per year from investors.


Switzerland is considered one of the most stable countries in Europe and relatively unique among the world’s major developed economies. The Swiss economy is relatively sound, especially when compared to neighboring economies. Public debt is at a manageable level, credit ratings are still AAA, and the nation often runs a trade surplus.

The unemployment rate of the nation is also much lower than the neighboring economies, suggesting that Switzerland has been able to do better than most (read: Switzerland ETF Investing 101).

However, one issue that is linked with this region is that its currency is pegged to the Euro. The Swiss National Bank (:SNB) intervened to peg its value against the Euro at a floor of 1.20. The pegging led to the currency not falling beyond 1.20 thereby making it less appreciable for American investors especially in an environment where the euro continues to be weak.

Apart from this, Switzerland remains an intriguing choice for investors. Those seeking to put their money in this part of Europe can invest in iShares MSCI Switzerland Index Fund (EWL). The performance of the fund has been quite remarkable despite the rising turbulence in the European market.

The fund is up nearly 12% and by far the most popular ETF targeting the Swiss market, having amassed just less than a billion in assets. The product is also relatively cost efficient, charging 50 bps a year while trading nearly 496,000 shares a day.

In terms of holdings, the Swiss ETF has 40 securities in its basket, mostly focused on the large cap space. The fund appears to be highly concentrated in its top 10 holdings as nearly 72% of the asset base goes towards those stocks. Nestle (NSRGY), Roche (RHHBY) and Novartis (NVS) make up for combined 44% share.

The fund is not diversified among the different sectors with the top three sectors, namely, healthcare, financials and consumer staples being assigned approximately 69% of the asset base (read: Switzerland ETFs in Focus on China FTA Deal).

Bottom Line

Investors should note that although these funds belong to Europe, they hold relatively well in the current turmoil and uncertain environment. All the three ETFs currently have a Zacks ETF Rank of 3 or 'Hold' rating (read: Zacks ETF Rank Guide).

While the Euro zone crisis remains unresolved, European markets are still showing some sort of resilience after relentless efforts by policymakers across the Atlantic (read: Can This High Yielding European ETF Surge Higher?).

This is especially true considering the current liquidity environment and the European Central Bank’s willingness to slash interest rates further if required.

Thanks to these factors, events in Europe appear to be in the ‘muddle through’ scenario. Consequently, equities should hold up rather well in the near term. This could potentially make the European ETFs solid choices during these coming summer months.

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Read the analyst report on EIRL

Read the analyst report on EDEN

Read the analyst report on EWL

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