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A Preference for Germany ETFs


As investors have been eager to pull cash from U.S. equity exchange traded funds and as many emerging markets funds have been plagued with glum performances, Europe ETFs have been pleasantly defiant.

Defiant because Europe ETFs have bucked the outflows trend with some delivering positive returns. Even with sturdiness of some European equity markets and impressive performances by and inflows to ETFs tracking peripheral nations, some investors prefer the continent’s more conservative offerings. [Europe ETFs See Surge in Inflows]

That includes Germany, the Eurozone’s largest economy.

“Political stability and economic strength continue to favor German shares over those of France, which – in turn – should be outperforming Italy. Moreover, hesitancy in pursuit of much-needed macroeconomic reforms will likely undercut French shares as renewed political instability undermines Italy’s appeal to foreign investors,” said S&P Capital IQ in a new research note.

Germany, France and Italy are the European Monetary Union’s three largest economies, but Germany is “the most attractive market for investment, Germany’s long-established competitive advantages of resilient productivity, economic versatility, and political durability render German equities a core concentration in a globally diversified portfolio,” said S&P Capital IQ.

Of the major ETFs tracking each country, the iShares MSCI Italy Capped ETF (EWI) has been the best performer year-to-date, but it has also been the most volatile. EWI is up 7.8% while the iShares MSCI France ETF (EWQ) is up 2.3%. S&P Capital IQ has marketweight ratings on both funds. [Italy ETF Looks Tempting]

S&P Capital IQ Global Markets Intelligence says “mediocrity best describes how it expects France’s stock market to perform from now through 2015.”

S&P Capital IQ also has a marketweight on the iShares MSCI Germany ETF (EWG) , a solid if not spectacular performer this year. German stocks are pricey compared to peers in France or the PIIGS nations, but that is the result of the “safety premium” investors are will to pay for Germany’s perceived steadiness.

Adding to the case for German stocks is the country’s trade surplus, which reached a record $270 billion last year. GMI recommends an overweight position on German industrials, a sector that accounts for nearly 14% of EWG’s weight.

In addition to EWG, there are other sound ETF options for accessing Germany including the db X-trackers MSCI Germany Hedged Equity Fund (DBGR) and the iShares MSCI Germany Small-Cap ETF (EWGS) . DBGR offers the advantage of possible upside in German stocks with protection against a falling euro.  EWGS, which like EWG is not currency hedged, is one of this year’s best Germany ETFs with a gain of 6.5%. [Multiple ETF Avenues to Germany]

iShares MSCI Germany ETF

ETF Trends editorial team contributed to this post.


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.