It is the Eurozone’s largest economy and home to some of the most well-known and largest European companies. Germany has other positive traits that make the country’s equity markets alluring to U.S. investors.
While not a fact that many ordinary Germans would like to remember, their country was arguably the glow that held the Eurozone together as the PIIGS and Cyprus flirted with disaster during the dark days of Europe’s sovereign debt crisis.
Germany’s economic heft and steadiness has led to valuations that are above those in Southern European equity markets, a “safety premium” investors are willing to pay to access conservative exposure to Europe. [ETF Investors Embrace a Different Way to Germany]
Investors that do not want to stock-pick in Germany have multiple country-specific exchange traded funds to choose from. It can even be said that there are more Germany ETFs on the market today than some investors realize and some have important differences to consider before investors hit the buy button.
iShares MSCI Germany ETF (NYSEArca: EWG)
Assets Under Management: $6.28 billion
2014 Performance: Up 3.2%
Comment: EWG is the standard bearer among Germany ETFs. At nearly 17 years old, it is the oldest Germany ETF and with almost $6.3 billion in AUM, it is by far the largest. EWG is home to 56 stocks, including Germany giants Bayer, Siemens (NYSE: SI), SAP (NYSE: SAP), Daimler and BMW.
Although EWG is not a currency hedged ETF, it is levered to the German export story with an almost 22% weight to the consumer discretionary sector. EWG charges 0.48% per year. [10 ETFs for Possible World Cup Winners]
db X-trackers MSCI Germany Hedged Equity Fund (NYSEArca: DBGR)
AUM: $41.5 million
2014: Up 2.3%
Comment: Speaking of euro hedged Germany ETFs, there is the db X-trackers MSCI Germany Hedged Equity Fund. One feather in DBGR’s cap is that, on a percentage basis, it is one of 2014 fastest-growing ETFs. Increasing the allure of DBGR is Germany’s trade surplus, which reached a record $270 billion last year. In an environment where trade surpluses are prized by global investors, Germany’s own surplus has played a part in DBGR’s increased prominence.
Earlier this month, Deutsche Bank lowered the annual expense ratio on DBGR to 0.45%. [Deutsche Pares Fees on Germany, Japan Currency Hedged ETFs]
WisdomTree Germany Hedged Equity Fund (NYSEArca: DXGE)
AUM: $9.4 million
2014: Up 3.2%
Comment: DBGR has a direct competitor in the form of the WisdomTree Germany Hedged Equity Fund, which debuted in mid-October 2013. Not only does DXGE feature a long dollar/short euro component, but the new ETF is heavily exposed to the German export story as discretionary and industrial stocks combine for over 41% of the fund’s weight. DXGE also has double-digit allocations to financial services, materials and health care. The fund charges 0.48% per year.
First Trust Germany AlphaDEX Fund (NYSEArca: FGM)
AUM: $61.8 million
2014: Up 5.2%
Comment: Among Germany ETFs, none command the attention that EWG does, though FGM’s year-to-date performance says this smart beta fund is worthy of closer examination. Like DXGE, FGM is heavily allocated to discretionary and industrial names with those sectors combining for over 40% of the fund’s weight.
FGM is departure from its rivals in that it is neither cap-weighted or currency hedged. Rather, FGM’s 40 holdings are selected based on 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, according to First Trust.
Market Vectors Germany Small-Cap ETF (NYSEArca: GERJ)
AUM: $6.3 million
2014: Up 5.6%
Comment: GERJ is the oldest of the two Germany small-cap ETFs and investors would do well not to avoid this ETF simply based on its size. Over the past two years, GERJ has surged 54%, proving that judging an ETF by its AUM total is a regrettable metric. GERJ charges 0.55% per year and holds 86 stocks.
iShares MSCI Germany Small-Cap ETF (NYSEArca: EWGS)
AUM: $33.8 million
2014: Up 7.4%
Comment: The performances delivered by GERJ and EWGS this year (and in 2013) prove that for risk-tolerant investors, German investors are worthy of consideration as satellite holdings. Said another, way EWGS and GERJ have both been far more rewarding in 2014 than the Russell 2000. EWGS charges 0.59% per year and is home to 106 stocks. [Ten Best Europe Country ETFs]
SPDR EURO STOXX 50 Fund (NYSEArca: FEZ)
AUM: $5.19 billion
2014: Up 2.5%
Comment: Obviously, FEZ is not a pure Germany ETF, but we included it on this list because of the major diversified Europe ETFs, FEZ has one of the largest Germany allocations at 33.2%. Only France at 36% receives a large county allocation in FEZ. Six of the ETF’s top-10 holdings are German companies.
FEZ is not currency hedged, though its 27.6% weight to financials could provide a boost if bond yields continue declining in Spain and Italy, a combined 20% of the ETF’s weight. FEZ is one of the cheaper ways to access Germany at just 0.29% per year.