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Should You Buy Germany ETFs on Optimistic GDP Outlook?

Zacks Equity Research
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The International Monetary Fund (IMF) recently raised its growth forecast for Germany, the biggest country in the 19-nation Eurozone bloc. We note that it grew at an impressive pace in the fourth quarter of 2017. The economy has been benefiting from low unemployment and interest rates. Moreover, a global recovery in trade has been a positive for this export-dependent country.

Leading economic institutes in the country, on which the government depends to issue its own growth estimates, will revise their growth estimates soon to reflect the more optimistic scenario.

Into the Headlines

The Washington-based organization expects the German economy to grow 2.5% in 2018, 0.2% more than its previous estimate released in January. For 2019, the IMF expects a calendar adjusted growth rate of 2.0% (read: ETFs to Buy As German Economy Grows).

Although the economy seemed to have lost some steam in the beginning of 2018, strong economic fundamentals led to optimistic estimates. Strong tax revenues, a record budget surplus and strong employment figures are expected to boost German GDP growth. Per a Destatis report, Germany’s budget surplus increased to 36.6 billion euros in 2017, the highest ever surplus since German reunification in 1990.

Coming to joblessness, seasonally adjusted unemployment rate in March was 5.3%. The number of unemployed people in the month was 2.5 million, 204,000 lower than the number reported in the same period a year ago, per a DW.com article. 

Global Factors at Play

Tensions between Washington and Beijing have kept policymakers across the world at the edge of their seats. Fears of a trade war between the world’s two largest economies might lead to instability across the world, damage trade relations and cause prices to spike. Although multiple market experts expect negotiations to solve the crisis, investors need to be cautious.

Another factor concerning investors is the increase in tensions in the Middle East. Increased geopolitical risks related to the missile strike on Syria and fears relating to the clash between Yemen’s Houthis and Saudi Arabia have led investors to adopt a cautious stance.

Let us now discuss a few ETFs that are primarily focused on providing exposure to German equities (see all European equity ETFs here).

iShares MSCI Germany ETF EWG

This fund is an appropriate bet for those looking to gain exposure to large-cap companies in Germany.

EWG has AUM of $4.3 billion and charges 49 basis points in fees per year. Consumer Discretionary, Financials and Materials are the top three sectors of this fund, with 19.4%, 15.0% and 14.4% allocation, respectively. The top three holdings are Allianz, SAP and Siemens AG, with 7.2%, 7.1% and 6.9% exposure, respectively. EWG has returned 18.8% in a year. As such, EWG has a Zacks ETF Rank #2 (Buy), with a Medium risk outlook.

First Trust Germany AlphaDEX Fund FGM

This fund seeks to provide exposure to German equities across market caps.

FGM has AUM of $272.4 million and charges 80 basis points in fees per year. Consumer Discretionary, Industrials and Real Estate are the top three sectors of this fund, with 24.2%, 19.9% and 17.0% allocation, respectively. From an individual holdings perspective, Wirecard AG, Deutsche Wohnen AG and Grand City Properties S.A. are the top three holdings of the fund, with 5.0%, 4.4% and 4.2% allocation, respectively. It has returned 33.5% in a year. As such, FGM has a Zacks ETF Rank #1 (Strong Buy), with a Medium risk outlook.

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ISHARS-GERMANY (EWG): ETF Research Reports
 
FT-GERMANY (FGM): ETF Research Reports
 
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