European equities and the corresponding exchange traded funds have been drubbed this year, but investors should not be hasty in throwing in the towel on Germany, the Eurozone’s largest economy.
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.
The decline in the German markets may also be contributed to concerns over the ongoing Greek debt concerns and potentially forced exit from the Eurozone, which would weigh on Germany as it is Greece’s largest lender.
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.
According to Erin Gibbs of S&P Investment Advisory, “the expected forward EPS growth for Germany is 32 percent, compared to the S&P 500’s expected 3 percent. The DAX is also trading at a steep discount of 13 times forward earnings versus the S&P trading at 16 times forward earnings,” reports CNBC.
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 is Germany’s benchmark equity index. The Deutsche X-trackers MSCI Germany Hedged Equity Fund (NYSEArca: DBGR) is another currency hedged ETF investors can consider. That ETF has surged more than 6% over the past week.
German stocks “look like a really good value. They’ve been beaten up because of concerns around Europe, and that’s the one area we like within Europe,” said Gibbs in the CNBC interview.
iShares MSCI Germany ETF
