Saying Oui to the France ETF
April 2nd, 2014 at 9:30am by Todd Shriber
It might seem implausible that the lone ETF devoted exclusively to one of Europe’s largest economies could go overlooked, but a case can be made that is exactly what is happening to the iShares MSCI France ETF (NYSEArca: EWQ).
Investors glossing over EWQ comes at a time when the following scenarios are at play: Two Europe ETFs are among the top-10 asset gathering ETFs this year, including the Vanguard FTSE Europe ETF (NYSEArca: VGK). VGK has gathered more assets in 2014 than any other ETF. [Vanguard ETFs Bring in the Cash]
Not only that, but the WisdomTree Europe SmallCap Dividend Fund (NYSEArca: DFE) is up more than 11% and became a $1 billion ETF this year. In scenarios more relevant to EWQ, funds such as the iShares MSCI Italy Capped ETF (NYSEArca: EWI) and the iShares MSCI Spain Capped ETF (NYSEArca: EWP) have impressed both in terms of performance and asset-gathering acumen. [PIIGS ETFs Suddenly Pretty]
Combined, EWP and EWI have taken in more than $930 million this year while investors have pulled $56.3 million from EWQ. Investors have departed EWQ as the ETF has jumped more than 6%, a performance that is better than doubled that of the France’s benchmark CAC 40. EWQ has also outperformed the comparable Germany and U.K. ETFs.
Some traders and investors expect peripheral European markets, including France, will continue rebounding , stoked by lower bond yields and sentiment “that the economic recovery will lead to higher earnings,” according to Bloomberg. Lower bond yields should lift shares of European financial services firms, the second-largest sector weight in EWQ at 18%.
Peripheral European equity markets look inexpensive compared to the U.S., U.K., Germany and Switzerland. Last month, Societe Generale said it expects most European equity markets to be flat by the end of this year, but the bank did say it prefers France and Italy to the U.K., Germany and Switzerland. The bank is forecasting upside for the CAC 40 that is about 10% above current levels.
A recovery by integrated oil stocks could also boost EWQ as the ETF’s largest holding at 10.2% is Total (NYSEArca: TOT). Europe’s third-largest has already been driving EWQ higher. Shares of Total are up about 10% this year, a performance that is vastly superior to the 2014 returns offered by rivals Royal Dutch Shell (NYSE: RDS-A) and BP (NYSE: BP).
iShares MSCI France ETF