By this point in the year, it will not come as a surprise to
most investors that many
tracking developed European economies have delivered stellar
returns in 2012. Metaphors involving rising from the ashes and
Lazarus would be appropriate ways to describe the manner in which
many Europe funds have acted this year.
Whether it was yield hunting, the allure of tempting
valuations or just a hunch that things could not get much worse,
investors embraced an array of Europe-focused ETFs in 2012. From
the largest Eurpope ETFs to the newer names such as the Market
Vectors Germany Small ETF (NYSE:
) to the contrarian plays such as the Global X FTSE Greece 20 ETF
), 2012 was generally a good year in which to be long a couple of
What needs to be remembered is that the eurozone still faces a
lot of issues. Greece teeters on the brink of a demotion to
emerging markets status. Italy is mired in a recession and
Spain's unemployment rate is near 26 percent. With that in mind,
here are 10 of the top Europe ETF ideas for 2013.
Vanguard MSCI Europe ETF (NYSE:
Lost in all the commotion about the Vanguard MSCI Emerging
Markets ETF (NYSE:
) changing to a FTSE index is the fact that VGK is doing the same
thing. VGK will transition to the FTSE Developed Europe Index
next year. VGK's current top-10 holdings are quite similar to the
top-10 found in the
the FTSE index
and the ETF currently holds 455 stocks compared to 511 in the new
VGK currently holds shares of companies based in Austria,
Belgium, Denmark, Finland, France, Germany, Greece, Ireland,
Italy, the Netherlands, Norway, Portugal, Spain, Sweden,
Switzerland and the United Kingdom.
On the surface, it appears as if there are no major
differences between where VGK is right now and where it is going
to in terms of indexes. For those that are long this one fund,
one of the marquee Europe ETFs to be sure, they are hoping for a
sequel to 2012's impressive run. As of December 7, VGK was up
17.3 percent year-to-date. The good news is that VGK is up almost
0.7 percent since November 30. As of that date, VGK's new index
was up almost 16.9 percent on the year, according to FTSE
Global X FTSE Nordic Region ETF (NYSE:
Investors looking for ways to skirt eurozone headline risk only
needed to look to the north in 2012. Fortunately for those savvy
enough to have gotten involved with the Global X FTSE Nordic
Region ETF, that did not mean sacrificing returns as this
multi-country fund has surged 24 percent year-to-date.
Home to companies domiciled in Sweden, Denmark, Norway and
has proven durable without the controversy
provided by ETFs focusing on Southern Europe
For conservative investors looking for international developed
market exposure, GXF provides exposure to steady economies and
governments with AAA credit ratings and healthy balance sheets.
When it comes to Europe these days, GXF is arguably nirvana.
Global X Norway ETF (NYSE:
Keeping with the Nordic theme, the Global X Norway ETF has also
been an admirable performer this year. With roughly the same
volatility, NORW has outpaced the iShares MSCI Sweden Index Fund
) by over 100 basis points.
Of course past performance is no guarantee of future results
and there is some risk with NORW. Namely, it comes from the ETF's
heavy allocation to the energy sector and that comes about from
Norway's status as a major oil exporter. However, Norway's oil
production cuts both way. It may make NORW somewhat a tad riskier
than some would like, but there is a silver lining.
Norway does not just produce oil, but it legitimately reaps
the rewards of that production. The country has an
a $600 billion sovereign wealth fund
that can serve as a backstop for the economy in times of duress.
Not to mention, Norway has an AAA credit rating, something the
U.S. and France cannot say.
First Trust STOXX European Select Dividend Index Fund
Given that the First Trust STOXX European Select Dividend Index
Fund has a
30-day SEC yield of almost 6.5 percent
, the fund is under-appreciated relative to other Europe
The problem is that FDD has just $17.2 million in assets under
management and that total is low enough to keep some at bay. FDD
has also lagged the performance of other, more well-known Europe
ETFs thus far in 2012. However, things are not all bad with this
ETF. If risk appetite spikes in 2013, FDD is ideally positioned
to thrive due to its almost 40 percent weight to financials.
Clearly, a Europe ETF heavily weighted to the financial services
sector implies a high degree of risk, but the aforementioned
yield implies investors are at least compensated for taking that
iShares MSCI Belgium Capped Investable Market Index Fund
The iShares MSCI Belgium Capped Investable Market Index Fund has
jumped almost 24 percent this year in a performance that would
seem to defy all conventional wisdom. In late
2011, Belgium suffered a spate of credit
In fact, EWK was such a laggard last year that it was outpaced
by the iShares Spain Index Fund (NYSE:
). How this ETF performs in 2013 is going to be interesting to
watch and there are two big reasons why. First, the latest
Belgian budget raised investment taxes and takes steps to curb
wage inflation there because Belgian wage growth has outpaced
that seen in Germany and the Netherlands in recent years.
Second, EWK's 2012 performance has been driven in large part
by Anhueser-Busch InBev. That stock is up almost 44 percent
year-to-date and accounts for over 22 percent of EWK's weight.
With ETFs, that type of dependence on one stock works until it
iShares MSCI Switzerland Index Fund (NYSE:
As has been the case with the Nordic ETFs, the iShares MSCI
Switzerland Index Fund provided some nice non-Eurozone shelter
for investors in 2012 as the fund gained nearly 20 percent.
Despite what many know of Switzerland's status as a banking hub,
financials are the third-largest sector weight in this ETF, not
On a related note, if EWK is a one-stock pony, than investors
need to be aware that Nestle (OTC:
), Novartis (NYSE:
) and Roche combine for over 48 percent of EWL's weight.
Those looking for a bit more diversity at the stock level can
consider the First Trust Switzerland AlphaDEX Fund (NYSE:
), which has gained 10 percent in the past 90 days.
iShares MSCI Austria Investable Market Index Fund (NYSE:
The lone Austria ETF is 22.5 percent this year and with a
price-to-earnings ratio of 15.34 and a price-to-book ratio of
1.51, the ETF is cheaper by those metrics than the comparable
France ETF. On the other hand, Austria should be inexpensive
because its economy is offering little in the way of growth.
The Oesterreichische Nationalbank, Austria's central bank,
last week pared its 2012 GDP growth forecast to 0.4 percent from
a previous estimate of 0.9 percent. For 2013, the estimate was
slashed to growth of 0.5 percent from a the prior estimate of 1.7
WisdomTree Europe Hedged Equity Index Fund (NYSE:
The WisdomTree Europe Hedged Equity Index Fund might be one of
the better new ETFs a lot of folks have not heard about. That is
because HEDJ is not a new ETF by the standard definition. Rather,
it is an old ETF with a new twist.
Actually, it is new "twists." Earlier this year, WisdomTree
dramatically reduced HEDJ's exposure to bank stocks, eliminated
12 currencies from the ETF's lineup while increasing the ETF's
allocations to European dividend-payers that derive the bulk of
their sales from outside of the Eurozone. HEDJ debuted in its new
form on August 30
. Since then, the ETF has gained 8.3 percent.
PowerShares BLDRS Europe Select ADR Index Fund (NASDAQ:
The BLDRS Europe Select ADR Index Fund may not be a household
name among Europe ETFs, but the fund is up 15 percent this year.
Chances are investors are familiar with at least a few of ADRU's
holdings because all 83 of them trade in the U.S. Top-10 holdings
include Novartis, BP (NYSE:
) and Royal Dutch Shell (NYSE: RDS-A).
Health care and staples names combine for 31 percent of ADRU's
weight, but financials and energy stocks combine for almost 39
percent. That gives this ETF plenty of risk on feel to it. ADRU's
average daily volume, or lack thereof, could be a turnoff for
some, but remember most of this ETF's holdings are heavily traded
on U.S. exchanges. Those factors should provide for decent
liquidity and tolerable bid/ask spreads.
iShares MSCI Germany Index Fund (NYSE:
There is no point in ignoring the 800-pound gorilla in the room.
The room being the Eurozone economy and the gorilla being
Germany. In recent days, the Eurozone's largest economy has been
home to a spate of mixed economic data points. Last week, the
Bundesbank forecast German GDP growth in 2013 of just 0.4
percent, down from an estimate of 1.6 percent in June.
The central bank has also warned about another German
recession. On the other hand, German exports rose slightly in
October. As is often seen with many ETFs focusing on Europe, the
bull case for the iShares MSCI Germany Index Fund involves a lot
of "ifs." In this case, the ifs are if emerging markets such as
China rebound and if German GDP growth could surprise to the
upside, EWG might be able to build on its 27.2 percent gain to
this point in 2012 next year.
All of those sentiments can be applied to the Market Vectors
Germany Small-Cap ETF (NYSE:
) as well. Actually, the biggest concern is Germany's ability to
dodge another recession. Most of the respondents
in a recent Bloomberg survey do not think Germany
can do that
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