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France ETFs in Focus as Economic Growth Hits 6-Year High

Zacks Equity Research

The French economy grew at its fastest pace since 2011, with Emmanuel Macron at its helm. Macron’s economic reforms and corporate tax cuts contributed to the success of the economy, and bolstered confidence among investors.  

More Into the Headlines

France GDP grew 1.9% in 2017 compared with 1.1% in 2016, the strongest performance since 2011, per France’s statistics institute Insee. In the final quarter of 2017, France's economy expanded 0.6% sequentially compared with 0.5% in the prior quarter.

Per a Bloomberg article, Finance Minister Bruno Le Maire said, “This is the result of the return of confidence of households and entrepreneurs since the election of the president and the implementation of reforms, as well as a positive international environment,” adding, “The latest data show that this trend should continue in 2018.”    

The better-than-expected GDP growth was primarily attributed to a robust rise in investment. Business investment grew 4.3% in 2017 compared with 3.4% in the prior year, while overall investment rose 3.7% in 2017 compared with 2.7% in the prior year. Moreover, exports growth accelerated 2.6% in the quarter compared with 1.1% in the prior quarter.

Jump in Approval for Macron

Macron is seen as a business-friendly president. In October, Macron revised labor rules that give French companies the power to negotiate. In a speech at the World Economic Forum at Davos, Macron said, “France is back at the core of Europe”.

Per Labour Ministry's statistics, unemployment rate increased to 9.7% in the three months to September compared with 9.5% in the previous quarter. Macron aims to bring this rate down to 7% by the end of his term in 2022, which seems to be a long shot as of now. However, the recent jump in Macron’s approval indicates that investors remain upbeat about his potential to deliver on his promises.

Per a MarketWatch article, citing a statement by Anne-Charlotte Fredenucci, chairwoman engineering firm Ametra Group, Macron’s reforms have helped companies to create jobs. She said, "If we hadn't had the election of Emmanuel Macron and the policies that followed. I think we clearly would not be in a position to recruit 100 people in 2018."

Let us now discuss the most popular ETF focused on providing exposure to the French economy (see all European Equity ETFs here).

iShares MSCI France ETF EWQ

This ETF is a pure play on French equities and provides exposure to large and mid-sized companies in France.

It has AUM of $830.8 million and charges 49 basis points in fees per year. From a sector look, Industrials, Consumer Discretionary and Financials are the top three allocations of the fund, with 21.0%, 18.5% and 15.3% exposure, respectively (as of Jan 29, 2018). Total SA, Sanofi SA and BNP Paribas SA are the top three holdings of the fund, with 8.1%, 6.0% and 5.5% exposure, respectively (as of Jan 29, 2018). It has returned 6.2% year to date and 33.3% in a year (as of Jan 30, 2018). It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

Let us now compare the performance of this ETF to a broad Europe based ETF, EZU.

iShares MSCI EMU ETF EZU

This ETF is a play on developed European economies using the common currency with a focus on large and mid-cap equities (read: 5 ETFs to Buy and Hold for 5 Years).

It has AUM of $16.7 billion and charges 49 basis points in fees per year. The fund has a 32.6% allocation to France, 29.9% to Germany and 10.8% to Netherlands (as of Jan 29, 2018). From a sector look, Financials, Industrials and Consumer Discretionary are the top three allocations of the fund, with 21.1%, 15.0% and 14.0% exposure, respectively (as of Jan 29, 2018). Total SA, Banco Santander SA and Siemens AG are the top three holdings of the fund, with 2.6%, 2.3% and 2.2% exposure, respectively (as of Jan 29, 2018). It has returned 6.3% year to date and 31.3% in a year (as of Jan 30, 2018). It has a Zacks ETF Rank #3 with a Medium risk outlook.

Below is a chart, comparing the one year performance of the two funds.

Source: Yahoo Finance

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