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Three European ETFs with Incredible 2012 Gains

Zacks Equity Research

European woes continue to cast a shadow over the world economy. The Euro-zone reported negative growth of 0.10% in the third quarter of fiscal 2012, a small improvement from a contraction of 0.2% in the second quarter of fiscal 2012 (Beyond the PIIGS, Three Troubled European ETFs to Watch).

Still debt issues are front and center, and Europe, in an attempt to reduce its deficit, has been taking measures like raising taxes or reducing spending. Both have been implemented in various nations, although growth rates have suffered while deficits have hardly come down at all in most nations (Three Resilient European ETFs Still Going Strong).

In any case, a major part of the European region lacks economic stability and is facing low-growth prospects characterized by budget deficit, a high unemployment rate and a high debt level. Euro-zone unemployment level came in at a historical high of 11.7% in October with Spain and Greece reporting the highest unemployment rates within the area. The unemployment rate in Spain came in at 26.2% while Greece recorded a rate of 25.4% in October.

In such a scenario, many investors have been avoiding investing in ETFs tracking the affected Euro-zone area. These ETFs have been booking losses due to the low growth rate. Investors seem to have shifted their asset to those country ETFs which have been resilient to European woes and have posted solid gains despite the gloomy picture across the continent (Three Forgotten Ways to Play Europe with ETFs).

These countries in Europe have proved their strength even in an unfavorable economic environment. Luckily for investors, there are several ETFs that are tracking these markets, and have performed strongly in 2012, bucking the broad trend for the space.

Below, we discuss three country focused ETFs that target regions that have managed to avoid the worst of the European crisis. Any of these could make for interesting picks starting the New Year as they have proven to be both resilient and top performers even with the rough economic outlook:

iShares MSCI Switzerland Index Fund (EWL)

Switzerland is considered one of the most stable countries in Europe. It is a developed economy which has a budget surplus unlike neighboring economies and has a credit rating of ‘AAA’.

Just one issue that is linked with this region is that its currency is pegged to the Euro. The Swiss National Bank (:SNB) intervened to peg its value against the Euro at a floor of 1.20 (Switzerland ETF Investing 101).

Apart from this Switzerland remains an intriguing choice for investors. Investors seeking to put in their money in this part of Europe can invest in iShares MSCI Switzerland Index Fund (EWL).

EWL tracks the MSCI Switzerland Index capturing 40 stocks of the Swiss economy. In this small basket, the fund invests an asset base of $702.9 million.

The performance of the fund has been quite remarkable despite the rising turbulence in the European market. The fund delivered a return of 15.8% over a period of one year.

The fund provides a very concentrated exposure with more than 75% of the asset base in the top ten holdings. In fact, the top three holdings get a share of 48.1% in the fund while among others the fund does not invest more than 4.86%.

The fund is not diversified among the different sectors with the top four sectors, namely, Healthcare, Consumer Staples, Financials and Industrials being assigned approximately 80% of the asset base. The fund charges a fee of 52 basis points annually.

Global X FTSE Nordic Region ETF (GXF)

With the intensifying Euro-zone debt crisis, investors seeking for safer nations in the European region can look to invest in the broad Nordic region which consists of Denmark, Sweden, Norway and Finland. Apart from some key discrepancy, all of the group appears similar with a heavy handed government approach to run their small economies (Nordic ETF Investing 101).

All the four are known for decent GDP growth and are economically stable. The balance sheet and government spending of these countries appear to be in good shape.

In the recent report by Transparency International on corrupt countries, Denmark and Finland were ranked 1 indicating that these are some of the cleanest countries in the world. Sweden and Norway were also ranked near the top of the list.

Investors seeking to invest in this least corrupted and economically stable region of Europe in basket form can put in their money in Global X FTSE Nordic Region ETF (GXF). GXF is the only ETF available to tap the broad Nordic region via one product.

By providing exposure to small but steady economies of Europe, the fund has been able to deliver a return of 18.4% over a period of one year. The fund exposure is limited to 41 largest and most liquid securities of the broad Nordic region.

In these 41 securities, 48% happens to be Swedish securities while Denmark and Norway each get 20%. Finland stocks get the least share with a 10% holding. So, it appears that the fund is biased towards national exposure.

The fund has been partial when it comes to individual holdings where it has invested almost half of the asset base. The fund charges a fee of 50 basis points annually.

Global X Norway ETF (NORW)

For a more concentrated play in the Nordic region, a look to Norway could be a solid bet. With large oil reserves, healthy fiscal and monetary balance sheet, no public debt and significant accumulated wealth, Norway is regarded as one of the richest countries in the world

The economy is characterized by a low unemployment rate, and a low inflation level. Rising consumer spending and recovery in housing market led to the growth of the economy. One factor which can affect the growth of the economy is its export to Europe. Additionally, the Norwegian economy remains susceptible to domestic concern like an overheated housing market.

On the whole, taking into consideration the crisis in the Euro-zone, investors can think of investing in Norway which has strong fundamentals and is economically sound. This can be done through Global X Norway ETF (NORW) (Norway ETFs for Safer European Play).

Despite a moribund Europe, the fund delivered a return of 17.4% over a period of one year.

Through NORW investors can tap 31 large cap securities of the Norwegian market. The fund is not at all diversified with a very heavy concentration in the top ten holdings. Almost 73% of the asset base goes towards the top ten holdings.

The fund charges an expense ratio of 50 bps annually and manages an asset base of $57.4 million so far in the year. The product trades with volumes of 37,200 shares per day on an average, suggesting modest bid ask spreads.

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Read the analyst report on NORW

Read the analyst report on EWL

Read the analyst report on GXF

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  • Read the analyst report on NORW, EWL, GXF