When it comes to ETFs devoted to Germany, the Euro Zone's
largest economy, there's just four on the market today, a number
that some might consider to be small given the importance of this
country on the global economic stage. Or it can be said that four
is enough, but that the assets certainly aren't spread out too
The iShares MSCI Germany Index Fund (NYSE:
), which debuted in March 1996, is the oldest and largest Germany
ETF. EWG tracks 52 stocks and has over $2.5 billion in assets
under management, a number that is significant enough to
potentially keep rivals at bay and ensure
other Germany ETFs may slip through the
One Germany-specific ETF that has gone unnoticed, and we're
not saying that's a good thing, is the First Trust Germany
AlphaDEX Fund (NYSE:
). The First Trust Germany AlphaDEX Fund debuted on Valentine's
Day and has managed to attract little in the way of investor
love. Maybe it's because the Euro Zone is a mess right and
investors are even running away from Germany. Or maybe it's
because FGM charges 0.8% compared to just 0.51% for EWG. Whatever
the reason, the First Trust offering has stumbled out of the
gate, at least in terms of superficial metrics such as AUM and
average daily volume (less than 100 shares).
Speaking to the points of volume and FGM's anonymous status,
it must be noted that near as we can tell, the new Germany fund
hasn't traded since April 24. That's surprising if for no other
reason than that the Euro Zone's calamity has escalated. Figure
it this way: Since April 24, France has elected a new socialist
president and Greece has tried and failed to form a new coalition
government. It would be logical to assume these headlines would
spark some interest in FGM, but that has not been the case.
It is the lack of interest in FGM to this point that belies
the two most important factors about the fund: Its returns and
how it generates those returns. While FGM and EWG are both
passively managed, the AlphaDEX methodology employed by First
can lead to important and profitable differences
over rival funds
FGM's index employs the AlphaDEX stock selection methodology
which uses fundamental growth and value factors to objectively
select stocks from the S&P Germany BMI universe which may
generate positive alpha relative to traditional passive indices.
The index is a modified equal-dollar weighted index where higher
ranked stocks receive a higher weight within the index, First
Trust says in FGM's fact sheet.
Said another way, most traditional ETFs are weighted by the
market value of their constituents, but FGM employs a quality
scree so the highest quality, not always the largest, stocks
receive larger allocations within the fund.
Obviously, there's going to be some overlap in terms of
holdings between the FGB and EWG. Both funds offer heavy exposure
to German large caps and that means Deutsche Bank (NYSE:
), SAP (NYSE:
), BMW and Volkswagen, among others, appear in both funds.
The bottom line is this: Including the Market Vectors Germany
Small-Cap ETF (NYSE:
) and the iShares MSCI Germany Small Cap Index Fund (BATS: EWGS),
there are four Germany ETFs trading in the U.S. today. FGM wins
the silver medal, barely trailing EWGS. Of course, the more
natural comparison is against EWG. That fund is down almost 9.4%
compared to a less than 3.4% decline for the First Trust fund.
Obviously, index methodology is playing a part in that
performance and that is something investors cannot afford to
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