Switzerland is known for a few things. The affluent praise
Switzerland for its high-end watches and formerly favorable and
top-secret banking structure. On the world political stage,
Switzerland is most known for its neutrality in major global
affairs.
Investors have embraced Switzerland because it is a developed
economy that has been a steady hand in a region with precious few
of the latter. Still, there are not many ETFs exclusively devoted
to the country, just two in fact. The dominant fund is the iShares
MSCI Switzerland Index Fund (NYSE:
EWL
) and the newcomer is the First Trust Switzerland AlphaDEX Fund
(NYSE:
FSZ
).
The First Trust Switzerland AlphaDEX Fund debuted in February
and thus far has raked in just $4.5 million in assets under
management. That is a far cry from the $575.4 million in AUM held
by the iShares MSCI Switzerland Index Fund.
Despite its diminutive stature, FSZ should have something going
for it. That being the AlphaDEX methodology, which has
proven to efficacious with other First Trust
ETFs
.
That meanw FSZ is not the run-of-the-mill cap-weighted ETF.
Rather, Standard & Poor's builds the index tracked by the ETF
by screening "growth factors including 3-, 6- and 12-month price
appreciation, sales to price and one year sales growth, and
separately on value factors including book value to price, cash
flow to price and return on assets. All stocks are ranked on the
sum of ranks for the growth factors and, separately, all stocks are
ranked on the sum of ranks for the value factors. A stock must have
data for all growth and/or value factors to receive a rank for that
style,"
according to First Trust
.
By not using cap weighting, two of the largest Swiss companies
Nestle (
NSRGY
) and Novartis (NYSE:
NVS
), account for less than three percent of the ETF's weight. On the
other hand, that pair represents over 35 percent of EWL's weight.
As another example of the stark contrast in weights of holdings,
pharmaceuticals giant Roche (
RHHBY
) receives a weight of 13.4 percent in EWL. The same stock accounts
for just 0.83 percent of FSZ's weight.
The sector weights are vastly different as well. FSZ embraces
Switzerland's banking heritage with an allocation of 33.5 percent
to bank stocks while EWL devotes just under 19 percent of its
weight to the same sector. Even with a beta of 1.29 against the
S&P 500, EWL is conservatively positioned with a 29.4 percent
weight to health care names and a 24.3 percent allocation to
consumer staples stocks. Those sectors combine for just over 21
percent of FSZ's weight.
Given the significant differences in sector weights and the
composition of the two ETFs is not easy. Both offer exposure to
Switzerland, but that is arguably all they have in common. Those
willing to trade FBZ should note that ETF has performed better over
the past 30 and 90 days.
The risk there is that Swiss equities
are near-term overbought in the eyes of some
. There are still sound reasons to consider Switzerland for the
long haul and investors with a year or more to devote to a Swiss
position, should prefer EWL because it is almost 30 basis points
cheaper than FSZ and has outperformed its new rival by a wide
margin on a year-to-date basis.
For more on Switzerland and ETFs, click
here
.
(c) 2012 Benzinga.com. Benzinga does not provide investment advice.
All rights reserved.