The European economies have floundered because of the
financial disaster in several countries in the Eurozone. European
woes continue to hamper the world economy with mounting concern
for the Eurozone debt crisis. These economies are suffering from
rising unemployment rates and a low-growth environment due to
budget cuts (
Three European ETFs Beyond The Euro Zone
In fact, the unemployment rate in the broad euro zone was at
11.6% in September, up from 11.5% reported in August. This
indicates that the unemployment rate in the region is still
rising despite new measures.
Aggravating unemployment along with recession would result in
the government paying more compensation to the unemployed and
collecting less tax revenues. Ultimately more austerity measures
would be taken by these countries which will impede overall
economic activity, at least in the short to medium term.
With this backdrop, investors have duly turned their attention
to regions outside the Eurozone. Switzerland in this case remains
an intriguing choice.
Switzerland unlike the European Union economies is a developed
economy with budget surplus and credit rating of 'AAA'. The
unemployment rate of the region stands at 2.8%, much lower than
the neighboring economies (
For Europe ETFs, It Is Hard To Beat
There is one lurking issue, however, and this is that the
nation's currency, the Swiss franc, is now pegged to the euro.
The Swiss National Bank (SNB) intervened to peg its value against
the euro at a floor of 1.20. The pegging led to the currency not
falling beyond 1.20 thereby making it less appreciable for
American investors especially in an environment where the euro
continues to be weak (
Top Three Currency ETFs
But with the rising turbulence in the European market, it has
become extremely difficult for SNB to maintain the peg. If by any
chance the peg is removed it may lead to the currency gaining not
only against the dollar but against the euro as well.
While there is some risk with this issue, Switzerland remains
an interesting choice for the investors looking for some level of
European exposure but without euro currency worries at ths time.
For those seeking to tap this developed economy in an ETF form
have two options available at this time, both of which we have
iShares MSCI Switzerland Index Fund (
Launched in March 1996, EWL is linked to the MSCI Switzerland
Index. The Index has been designed to measure the performance of
the Swiss equity markets. The index is a float adjusted, market
capitalization weighted index which mostly consists of publicly
traded large cap stocks.
The fund manages an asset base of $654.5 million and trades
with volume levels of more than 0.3 million shares a day. The
average bid ask ratio stands at 0.08% (
Guide to Most Popular ETFs
EWL provides exposure to 41 Swiss securities which mostly
covers the large cap section of the market spectrum. The fund
appears to be highly concentrated in its top 10 holdings as
nearly 76% of the asset base goes towards those stocks.
The top three holdings in the fund play a dominant role in its
performance as more than 45% of the asset base is invested in it.
The first three holdings are occupied by Nestle, Roche Holdings,
and Novartis. Among others, the fund does not invest more than
For sectors, the fund appears to be heavily invested in health
care. EWL allocates 28.6% of the asset base to the sector. Other
than this, the fund assigns double-digit allocation to consumer
staples, financials and industrials. Among others, the fund does
not invest more than 7.46%.
The fund's performance in 2011 has been disappointing
delivering a negative return of 7.31%. However, in the last one
year, the fund has done a good job setting off all the losses of
2011 and delivering a return of 15.8% (
Inside The Two ETFs Up More Than 140% YTD
The fund charges a fee of 52 basis points annually from
investors and has generated a yield of 2.58% in the process.
First Trust Switzerland AlphaDEX Fund (
Launched in February 2012, First Trust Switzerland AlphaDEX
Fund (FSZ) is the latest addition to the Swiss ETF lineup.
FSZ is a passively managed ETF designed to track the
performance of the Defined Switzerland Index, an index dominated
by the stocks selected on the basis of AlphaDEX screening
The AlphaDEX methodology for selecting stocks uses both growth
and value factors for determination of the stocks to be included
in the fund. In this way, investors get a blend of both growth
and value stocks in one fund.
The methodology may sound interesting and could lead to
outperformance, but this comes with an extra cost of 80 basis
Unlike its iShares counterpart, the fund has not been that
popular among investors as indicated by the trading volume of
just 600 shares a day on average (
Guide to the 25 Most Liquid ETFs
). Since its inception, the fund has been able to amass an asset
base of $4 million. So it appears that EWL dominates the investor
portfolio when it comes to Swiss ETF investing.
The ETF seeks to invest its asset base across the market
spectrum with a slight tilt towards small caps. Among mid caps
and large caps, the fund appears to be equally spread out.
The fund appears to be moderately concentrated in the top 10
holdings in which it allocates 40% of the asset base.
In terms of sector allocation, financials dominates the
holding pattern with double-digit allocation of 34.18%.
Industrials, materials and health care also get double-digit
allocation in the fund. In the top 10 holdings, financials and
industrials dominate the holding pattern.
Want the latest recommendations from Zacks Investment
Research? Today, you can download
7 Best Stocks for the Next 30 Days
Click to get this free report >>
ISHARS-SWITZERL (EWL): ETF Research Reports
FT-SWITZERLAND (FSZ): ETF Research Reports
To read this article on Zacks.com click here.
Want the latest recommendations from Zacks
Investment Research? Today, you can download 7 Best Stocks for
the Next 30 Days. Click to get this free report