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Merkel's Party Wins Key State Election: German ETFs in Focus

Zacks Equity Research

German chancellor Angela Merkel’s conservatives won a key state election in North Rhine-Westphalia on May 14, 2017. This state election was continuously being monitored as a prelude to the national election on September 24, 2017. Merkel’s chances of being re-elected for a fourth term received a significant boost after her party beat the Social Democratic Party (SPD) in her opponent Martin Schulz’s “home territory”.


The Christian Democratic Union (CDU) won 33% of the votes compared with Social-Democrats’ 31.2%. This has dealt a huge blow to Schulz, as although initially his party received a significant boost on his announcement to run for chancellor, Germany’s top job, the hype seems to have abated. The Social Democrats would have been expecting to secure North Rhine-Westphalia, Germany’s most populous state, as it is their stronghold and the home state of the face of their party. After the loss, Schulz urged his supporters to not lose hope and focus on the national election.


Merkel’s popularity took a hit some time back owing to her take on the refugee program in Germany. Also, her inability to directly advance women, has given Schulz a trump card as he wows to fill his cabinet equally with men and women.


Overall, there is increased uncertainty regarding who will win the national election in Germany. Though most polls predict Merkel having a 10% lead over Schulz, we know from recent history that polls cannot always be trusted. However, CDU has defeated the SPD in three state elections this year. This surely is representative of the national sentiment. Therefore, Merkel’s camp must be highly confident now, entering into the last stages of preparation before Germany heads to the polls in September (read: Do Europe ETFs Have More Upside?).


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


iShares Currency Hedged MSCI Germany ETF HEWG


This fund is an appropriate bet for investors looking to gain exposure to Germany without betting on the euro. We believe it is best to remain hedged to the currency till political uncertainty in the region is dealt with.


HEWG has AUM of $922.62 million and charges 53 basis points in fees per year. Consumer Discretionary, Financials and Health Care are the top three sectors of this fund, with 18.41%, 14.85%, and 14.12% allocation, respectively (as of May 12, 2017). It has returned 12.15% in the year-to-date time frame and 26.99% in the past one year (as of May 15, 2017). As such, HEWG currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.


WisdomTree Germany Hedged Equity Fund DXGE


This fund seeks to provide exposure to German equities without betting on the euro.


DXGE has AUM of $129.60 million and charges 48 basis points in fees per year. Consumer Discretionary, Industrials and Materials are the top three sectors of this fund, with 20.46%, 19.71%, and 16.93% allocation, respectively (as of May 15, 2017). From an individual holdings perspective, Siemens AG, Allianz SE, and BASF SE are the top three holdings of the fund, with 6.69%, 6.24%, and 6.13% allocation, respectively (as of May 15, 2017). It has returned 11.02% in the year-to-date time frame and 24.28% in the past one year (as of May 15, 2017). As such, DXGE currently has a Zacks ETF Rank #3 with a Medium risk outlook.


Deutsche X-trackers MSCI Germany Hedged Equity ETF DBGR


This fund seeks to provide exposure to German equities while hedging away currency risk.


DBGR has AUM of $66.33 million and charges 45 basis points in fees per year. Consumer Discretionary, Financials, and Health Care are the top three sectors of this fund, with 17.61%, 14.17%, and 13.47% allocation, respectively (as of May 12, 2017). From an individual holdings perspective, Siemens AG, Bayer AG, and SAP SE are the top three holdings of the fund, with 7.93%, 7.70%, and 7.42% allocation, respectively (as of May 12, 2017). It has returned 11.87% in the year-to-date time frame and 25.46% in the past one year (as of May 15, 2017). As such, DBGR currently has a Zacks ETF Rank #3 with a Medium risk outlook.


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