By Eric Dutram
Thanks to greater European integration and more bailouts for Greece, several countries in Europe look to be starting off the year on a solid note. This is because fears over a broad and chaotic Greek default are slowly slipping away while other, larger PIIGS nations—specifically Italy and Spain—seem poised to rebound as well, especially if their bond yields continue to fall out of the danger zone. In fact, the recently launched Greece ETF (GREK) has jumped by over 21% so far this year, demonstrating how quickly perceptions have changed regarding the peripheral European nations (read Believe It Or Not: Greece ETF Surging To Start 2012).
Yet beyond the PIIGS, the strong eurozone core has also seen stock price growth as well, as investors have flocked back to the largest economy in the region, Germany. Popular German ETFs have seen inflows of about $375 million so far this year, pushing the total asset increase up to about one billion over the past one year period. This has also transferred over into price appreciation for the ETFs as popular German funds have surged, much like their weaker European counterparts in the first part of 2012.
Thanks to this trend, some might feel that the worst is over for many European securities and that it could be time to cycle back into the region. Even if investors still have reservations over the future health of the euro zone, however, a move into lower risk nations like Germany could be the way to go. That way, if the worst happens in Europe investors will be better protected on the downside, but if confidence continues to surge, Germany looks to fully partake in any additional rallies (read Three ETFs With Incredible Diversification).
As a result, investors may want to consider their options in order to dial up exposure to the German economy. While the nation does have a few stocks that trade on American exchanges, a broad play via an ETF could be the way to go. For these investors, we have highlighted the four focused plays below, with a closer look at some of the key differences between the group:
iShares MSCI Germany ETF (EWG)
The most popular German ETF is this fund from iShares which has over $3.1 billion in AUM. The product follows the MSCI Germany Index, producing a fund that has 52 securities in its basket, charging 51 basis points a year in fees. Top sectors include consumer cyclical firms (19%), financials (17%), and basic materials (16%), giving the fund a nice mix of sectors. From an individual security perspective, industrial and basic material firms take the top two spots at just over 9% with Siemens (SI) and BASF (OTCQX:BASFY).
First Trust Germany AlphaDEX Fund (FGM)
For a more ‘active’ approach to German investing, many should consider FGM instead. The product is brand new, but offers investors exposure to the AlphaDEX methodology with a German focus, holding 41 securities and charging 80 basis points a year in fees. This also means that the fund looks to strip out the lowest rated securities, instead focusing only on the firms that have the most favorable growth and value metrics. With this approach, three sectors comprise at least 20% of the product’s exposure; basic materials, industrials, and consumer cyclical, giving it a similar focus as its more established counterpart (also read Australia ETFs: A Developed Market Play On Asian Growth).
Market Vectors Germany Small-Cap ETF (GERJ)
If you are looking for a small cap approach in the German market, Van Eck’s GERJ is a good choice. The fund holds about 100 small cap firms that have a focus on Germany, charging investors 55 basis points a year in fees for its services. Despite the small cap focus, assets are pretty well spread out from an individual security perspective, as the fund puts less than 5.5% in every security. However, the fund does have a heavier focus on certain sectors, as industrials make up about 30% of GERJ, while tech and consumer cyclical companies combine to make up another 30% as well (read Follow Buffett With These Developed Market Bond ETFs).
iShares MSCI Germany Small Cap Fund (EWGS)
In the latest iteration of German small cap ETFs, investors now have access to iShares’ entrant in the space, EWGS. The product follows the MSCI Germany Small Cap Index which holds about 80 securities in its basket while charging 59 basis points a year in fees for its services. The product has a similar breakdown from an individual security perspective, but could be more focused on industrials than GERJ. This iShares fund has four of its top six holdings in industrial companies while the sector accounts for roughly 35% of the total. Beyond the industrial holdings, tech (15%), consumer cyclical (13%), and health care (12%) round out the top four for the brand new fund.
Author is long EWG.
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