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The Rising Popularity of Single-Country ETFs


When it comes to accessing global markets with exchange traded funds, diversified plays are still among many investors’ first choice.

For example, the iShares MSCI EAFE ETF (EFA) and the Vanguard FTSE Emerging Markets ETF (VWO) are two of the four largest ETFs of any type. The Vanguard FTSE Europe ETF (VGK) and the iShares Core MSCI Emerging Markets ETF (IEMG) are two of the fastest growing ETFs listed in the U.S. [An Emerging Markets ETF for the Long Haul]

Advisors and investors also like single-country ETFs and their affinity for such funds has recently increased. “According to ETFGI, an independent investment research firm, over the last five years, assets in non-U.S. country funds have grown by 204 percent to $376 billion,” reports Bryan Borzykowski for CNBC.

Reasons for the increased popularity of single-country ETFs, according to CNBC, include the explosion in the amount of such funds on the market. It is not a stretch to say that as the ETF industry evolves, there might be more countries that are represented by at least one ETF than are not. Favorable fees are not reason cited by CNBC as is the increased popularity of currency hedged products.

The WisdomTree Japan Hedged Equity Fund (DXJ) , a hedged currency ETF, has hauled in $9.2 billion this year, making it the second-best ETF in terms of 2013 inflows. Other ETFs have benefited from advisors’ efforts to mitigate currency risk in client portfolios, including DXJ’s rival, the db X-trackers MSCI Japan Hedged Equity Fund (DBJP) and the WisdomTree Europe Hedged Equity Fund (HEDJ) .

DBJP and HEDJ are both currency hedged products and both have seen massive percentage increases in assets under management this year. [10 ETFs That More Than Doubled in Size]

Not all country-specific ETFs have thrived this year. The largest Brazil and China ETFs have shed over $5.8 billion in assets combined, though data suggest cash is returning to China ETFs. [November Reign for China ETFs]

Interestingly, advisors have glossed over what turned out to be many of this year’s best single-country ETFs. The aforementioned Japan ETFs are exceptions, but some of the best Europe ETFs can still be considered small.

As of Dec. 1, the First Trust Switzerland AlphaDEX Fund (FSZ) was this year’s best Switzerland ETF with a gain of almost 26%, but also with less than $26 million in AUM. The iShares MSCI United Kingdom Small-Cap ETF (EWUS) had just $22 million in assets despite being up nearly 31% and two single-country ETFs for Denmark and Finland have posted gains in excess of 30%, but have less than $35 million in AUM combined. [10 Best Europe Country ETFs of 2013]

WisdomTree Japan Hedged Equity Fund

Tom Lydon’s clients own shares of EFA and DXJ.