The euro zone has finally broken free from a two-year recession
with Germany leading the recovery. Germany - the heart of the euro
zone - has easily endured the recent turmoil in European markets,
and is well-positioned for further gains (read:
Europe ETF investing 101
In the third quarter of this year, Germany grew
meeting the GDP estimates. Although the rate was down
quarter-over-quarter, it was higher than that of many Eurozone
countries. German economic growth nudged up 0.7% in the second
quarter over a mere 0.1% increase recorded in the first three
Improvement in investments and consumption helped Germany stand out
in the euro zone. Other economic indicators also speak in
favor of the country's brighter prospects.
Thanks to the European Central Bank's rock bottom interest rate
policy, industrial activity in Germany has also perked up with
industrial orders increasing at a
than it was estimated in September. Exports also gained strength
as the trade surplus was shooting up to
euro in September on top of 13.3 billion recorded in the prior
The inflation rate was contained at
as of October. Also, a shrinking unemployment rate, all-important
lower government deficit, well-equipped infrastructure and a stable
government are aiding the country's growth (also read
Play Europe with these Small Cap ETFs
The best part is that despite the long streak of debt crisis, the
country has 'triple
' credit ratings from S&P and Fitch indicating a stable
credit outlook. All these culminated to a general optimism in the
country. The growing appetite for German stocks sent Deutsche Borse
AG German Stock Index
to a rally with around 20.0% gain in the year-to-date frame (as of
November 15, 2013).
In fact, citing the slow but steady run in the initial phase of the
year, we expect the German economy to become stable in the near
future. Though the broad-based recovery is still faltering, the
German economy is definitely heading in the right direction.
Germany thus appears to be a safe and lucrative bet in the Europe.
A look at some of the top ranked Germany-based ETFs could be a good
way to target the best that the country offers. In order to do
this, investors can look at the Zacks ETF Rank and find the top
About the Zacks ETF Rank
The Zacks ETF Rank provides a recommendation for the ETF in the
context of our outlook for the underlying industry, sector, style
box or asset class (Read:
Zacks ETF Rank Guide
). Our proprietary methodology also takes into account the risk
preferences of investors. ETFs are ranked on a scale of 1 (Strong
Buy) to 5 (Strong Sell) while they also receive one of three risk
ratings, namely Low, Medium or High.
The aim of our models is to select the best ETFs within each risk
category. We assign each ETF one of the five ranks within each risk
bucket. Thus, the Zacks ETF Rank reflects the expected return of an
ETF relative to other products with a similar level of risk.
For investors seeking to apply this methodology to their portfolio
in the European equities space, we have taken a closer look at the
top ranked EWG. This ETF has a Zacks ETF Rank of 1 or 'Strong Buy'
(see the full list of
) and is detailed below:
EWG in Focus
Launched in March 1996,
iShares MSCI Germany ETF
) is a passively managed exchange traded fund looking to deliver
the return of the capitalization-weighted MSCI Germany Index.
The fund is one of the most popular in the Europe equities space
with more than $5.0 billion in assets. With a huge trading volume
of around 3,000,000 shares a day, the fund provides investors ample
The choice is also a cheaper one as it charges 49 basis points in
fees a year which is quite below the average expense ratio in the
Europe equities space. In fact, higher trading volume led to
relatively lower expenses.
With 54 stocks in its basket, this fund from iShares puts as much
as 59.95% of its total assets in the top 10 holdings, suggesting
high concentration risk. Top companies include Bayer AG, Siemens AG
and BASF SE, all of which account for more than 8% of the assets.
In terms of sector exposure, consumer discretionary (20.57%) and
financials (16.81%) get considerable allocation in the fund, while
industrials (14.46%) and materials (14.15%) round out the top four.
Telecommunication (3.91%) and consumer staples (4.34%) get the
Style-wise, growth funds account for only 37% of the portfolio
while value takes the crown with 57% exposure keeping a lid on the
fund's risk profile. As much as 85% focus on large caps also calls
for lower volatility.
EWG has returned a handsome 25.6% roughly in the last one-year
period ended September 30, 2013. The fund is currently hovering
near its 52-week high level. EWG pays out a yield of 1.50% per
EWG could be a winner as the underlying country has set its foot on
the growth path and still remains undervalued. Just one word of
caution, the fund is unhedged, making it vulnerable to any weakness
in the Euro and how it trades against the dollar (read:
WisdomTree Launches Germany Hedged Equity ETF
Though, with the current market path, we don't anticipate this
being too much of an issue in the near term, so EWG may be a solid
pick for those seeking a fresh European ETF play to close out
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ISHARS-GERMANY (EWG): ETF Research Reports
ISHARS-MS GRMSC (EWGS): ETF Research Reports
FT-GERMANY (FGM): ETF Research Reports
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