ETF Talk: Betting on the Iron Chancellor

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

With the European Union considering a third bailout of Greece and most of its member nations struggling with sluggish growth and crushing debt, one country has done significantly better than its neighbors. Germany has grown its economy under Chancellor Angela Merkel, while many other European economies have faltered. Known by her supporters as the “Iron Chancellor,” Merkel gives investors hope for political stability in that country. One way to invest in Germany is through the iShares MSCI Germany Index (EWG), an exchange-traded fund (ETF) that holds a wide cross-section of German companies.

Major holdings in EWG include insurers, software companies and carmakers, such as Volkswagen (VOW3.DE). Not only are those sectors doing reasonably well, but the fund could be helped by the upcoming national German election. With Merkel’s Christian Democrats now leading in the polls only a month before the election, investors should be able to avoid Germany’s economic recovery from careening off course due to the uncertainty that a new leader might bring. During the past year, the German DAX Composite Index has rallied 19% — a favorable sign for the country’s economy and the politicians currently in power.

As you can see in the chart below, EWG has risen 6.8% since the beginning of 2013 and an impressive 21% during the last year.


EWG’s top 10 holdings comprise 59.13% of the fund’s total assets. Three of its top 10 positions are in the financial sector, including Deutsche Bank AG (DB.DE) with 4.37% of the fund’s assets. Other major investments of the fund include Basf SE (BFFAF.DE), the largest chemical company in the world, with 7.75% of EWG’s assets; and Linde Group (LIN.DE), the world’s largest industrial gas company, with 3.39% of the fund’s assets.

Economically sensitive companies that compose the consumer cyclical sector account for 20.90% of the fund’s assets. EWG’s next largest sector features financial services, with 16.83% of its assets. The fund’s third-biggest sector consists of basic materials, totaling 15.04% of its assets. EWG also is invested heavily in the industrial sector and the health-care sector, with smaller investments in technology, utilities and consumer defensive services.

Investors may want to watch this fund as the German election approaches. If Merkel’s party continues to lead in the polls, EWG’s performance could benefit since she has been at the helm as Germany flexed its economic muscle while other countries in Europe floundered.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to email me. You just may see your question answered in a future ETF Talk.

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