German stocks were among last year’s best developed Europe performers and some market observers believe that trend could continue in 2016. However, with the euro expected to remain weak this year, exchange traded funds investors need to be selective with Germany ETFs.
For example, the iShares MSCI Germany ETF (NYSEArca: EWG) traded lower last year by nearly 3%, but the iShares Currency Hedged MSCI Germany ETF (NYSEArca: HEWG) gained more than 3%. EWG tries to reflect the performance of the MSCI Germany Index, and HEWG tracks the same index except it hedges against a depreciating euro currency.
Some investors may be deterred by the ongoing flood of Syrian refugees entering Germany. While observers previously argued that the influx of refugees may help reverse Germany’s aging demographics, augment the country’s dwindling labor pool and stimulate infrastructure spending, Centre for European Economic Research President Clemens Fuest argues that Germany will have to pay a high cost and see little return on investment.
“The DAX Index rallied 9.6 percent last year, including a fourth-quarter jump that was double the gains for the Stoxx Europe 600 Index. Strategists predict the German benchmark measure, up even as the MSCI All-Country World Index fell in 2015, will climb further in 2016 on optimism that a weak euro and low oil prices will benefit the nation’s export-driven companies,” reports Alex Longley for Bloomberg.
Investors looking for direct DAX exposure can consider the Recon Capital DAX Germany ETF (NasdaqGM: DAX). With its heavy tilt toward large, multi-national companies, the DAX index benefited earlier in 2015 from a depreciating euro currency. A weaker euro would help support export growth and potentially generate greater revenue from overseas operations for the multi-nationals. DAX, the ETF, is the only U.S.-listed ETF that is a pure DAX index tracking fund. [A Rush to Europe ETFs]
The DAX, or Deutscher Aktienindex, is comprised of 30 largest and most liquid companies on the German equities market. The companies make up about 80% of Germany’s stock market capitalization. Additionally, each individual component’s weight is capped at 10% of the index.
The index is heavy on industrial, materials, financial services and consumer discretionary stocks, giving German stocks plenty of leverage to the weak euro theme. Germany is the Eurozone’s largest economy and its top exporter.
iShares MSCI Germany ETF
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.