ETF Talk: Investing in Germany, Europe’s Economic Engine

Doug Fabian

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

It was only in recent weeks that Europe pulled out of its longest recession since World War II (1-1/2 years) due largely to the turnaround in the French and German economies. In particular, the German economy drove the euro higher amid increased German investor confidence. And Germany ended its second quarter with a stronger-than-expected growth rate of 0.7%. Investors who are interested in profiting from the rise may want to consider the iShares MSCI Germany Small-Cap (EWGS).

This non-diversified fund tracks investment results from the MSCI Germany Small Cap Index, and it invests at least 90% of its assets in the underlying index’s securities.

The impressive 17.5% growth that EWGS has had this year reflects Germany’s resurgence. Last year, EWGS also had a strong gain in climbing 14.7%. In addition, the fund features a 1.94% dividend yield. Germany’s economic growth is projected to continue — but at a modest annual pace of 0.5% this year — boosting Chancellor Angela Merkel’s chances of reelection, as she likely will gain credit from voters for the improving economy.

EWGS-082813

Because EWGS is an exchange-traded fund (ETF) that tracks the fundamentals of the German economy, 29.91% of its assets are invested in industrials. And the remaining supporting sectors are Germany’s financials, 15.47%, and its infrastructure: consumer discretionary, 13.20%; health care, 13.09%; information technology, 12.75%; materials, 10.32%; and telecommunications, 3.72%.

EWGS’s top 10 individually held companies comprise 33.42% of its assets. The fund’s assets are tied to companies in manufacturing, fragrances, engineering, media and technology. Top holdings include: SYMRISE, 4.92%; MTU AERO ENGINES AG, 4.67%; BILFINGER SE, 4.09%; SKY DEUTSCHLAND AG, 3.62%; and WIRECARD, 3.25%.

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Germany’s economic growth actually picked up slightly between April and June, with investments in machines and equipment rising for the first time in 1-1/2 years, and that bodes well for the future prospects of EWGS.

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 by clicking here. You just may see your question answered in a future ETF Talk.

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