Europe has rebounded quite well and is now performing
remarkably on rising consumer confidence, declining unemployment
rates, rising exports, firmer currency, less concerns on debt
levels as well as improving manufacturing and service sectors.
This growth is broad based, led by the U.K. and Euro zone, which
finally emerged from its six-quarter long recession. Switzerland
- one of the most stable economies in Europe - is also fueling
the continent's growth story.
The economy grew more-than-expected in the second quarter buoyed
by robust private consumption and increased spending on machinery
and equipment (read:
Play Europe with these Small Cap ETFs
Though growth for the second quarter of 0.5% is higher than the
market expectation of 0.3%, it is down from 0.6% reported in the
first quarter. The construction sector was a slight drag on the
economy in the quarter with a 0.3% drop. Further, strength in the
Swiss currency (franc) weighed on exports.
Swiss Economic Outlook
The Swiss economy is relatively sound, especially when compared
to its neighbors in the region. This is because the country has
manageable public debt, enough trade surplus and AAA credit
The Swiss economy is expected to gain momentum at a faster pace
in the coming months. The government raised the country's GDP
growth outlook from 1.4% to 1.8% for this year and from 2.1% to
2.3% for the next.
The improved outlook comes on robust demand from key Swiss sales
markets and improving Euro zone business conditions. Further,
there have been some signs of upswing in exports as a recovery in
tourism has already started (read:
3 Top Ranked International ETFs Still Worth
The unemployment rate of the nation stands at 3.2% as of August,
much lower than the neighboring economies, suggesting that
Switzerland has been able to do better than most.
Additionally, the country emerged from the state of mild
deflation over the past two years in August, with zero inflation,
even though deflation was not a problem for the country. The
Swiss National Bank (SNB) conducts monetary policy with a focus
on maintaining price stability (CPI inflation rate of less than 2
However, one issue that is linked with this nation is that its
currency (Swiss franc) is pegged to the Euro. The SNB intervenes
in the foreign exchange markets to maintain the peg 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.
ETFs to Consider
Given strong fundamentals, Switzerland has been able to hold up
quite well than most European countries so far this year (read:
3 European ETFs Holding Their Ground
). Investors willing to tap the opportunity in this growing
economy could choose from the following two ETFs, any of which
could be a decent pick.
Both products are clearly outpacing the developed Europe market
funds by wide margins in the year-to-date time frame.
iShares MSCI Switzerland Index Fund (
This fund provides exposure primarily to large cap Swiss stocks
by tracking the MSCI Switzerland 25/50 Index and holds 40
securities in its basket. The product is heavily concentrated
across both sectors and securities.
More than two-thirds of the portfolio is allocated to the top
three sectors - healthcare, financials and consumer staples. In
terms of holdings, the top three firms collectively make up for
more than 44%, suggesting that the top firms dominate the returns
of the fund (see more in the
The fund has amassed nearly $940 million in its asset base. It is
relatively cost efficient, charging 50 bps a year while trading
nearly 507,000 shares a day. EWL is up nearly 120% in the
year-to-date time frame.
First Trust Switzerland AlphaDEX Fund (
This fund provides a slightly active choice as it uses AlphaDEX
methodology to select the stock. The methodology seeks to narrow
this European space to only the best positioned companies. It
ranks the stocks by various growth and value factors, eliminating
the bottom ranked 25% of the stocks.
This approach produces a basket of 40 stocks, which is widely
spread across each security as none of them holds more than 4.5%
of assets. From a sector perspective, financials take the top
spot at 33%, closely followed by industrials (25.89%) and health
The methodology may sound interesting and could lead to
outperformance, but this comes with an extra cost of 80 basis
points annually. Further, volume is light ensuring extra cost for
the product in the form of a wide bid/ask spread. The fund has
amassed only $20.7 million in its asset base and gained over 21%
so far this year.
These two products have been outperforming the broader European
market fund (
) and the broad U.S. market fund (
) by wide margins. Currently, we have a Zacks ETF Rank of 3 or
'Hold' rating on both EWL and FSZ (read:
all the European ETFs here
Given the favorable short-term and long-term outlook for the
nation, these ETFs could make an intriguing choice for investors
seeking to ride out the improving global economic conditions.
ISHARS-SWITZERL (EWL): ETF Research Reports
FT-SWITZERLAND (FSZ): ETF Research Reports
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