10 Top Europe ETF Picks for 2013
Metaphors involving rising from the ashes would be appropriate ways to describe the manner in which many Europe funds have acted this year.
By this point in the year, it will not come as a surprise to most investors that many ETFs tracking developed European economies have delivered stellar returns in 2012. Metaphors involving rising from the ashes and Lazarus would be appropriate ways to describe the manner in which many Europe funds have acted this year.
Whether it was yield hunting, the allure of tempting valuations or just a hunch that things could not get much worse, investors embraced an array of Europe-focused ETFs in 2012. From the largest Eurpope ETFs to the newer names such as the Market Vectors Germany Small ETF (NYSEARCA:GERJ) to the contrarian plays such as the Global X FTSE Greece 20 ETF (NYSEARCA:GREK), 2012 was generally a good year in which to be long a couple of Europe ETFs.
What needs to be remembered is that the eurozone still faces a lot of issues. Greece teeters on the brink of a demotion to emerging markets status. Italy is mired in a recession and Spain's unemployment rate is near 26 percent. With that in mind, here are the top 10 European ETF ideas for 2013.
Vanguard MSCI Europe ETF (NYSEARCA:VGK)
Lost in all the commotion about the Vanguard MSCI Emerging Markets ETF (NYSEARCA:VWO) changing to a FTSE index is the fact that VGK is doing the same thing. VGK will transition to the FTSE Developed Europe Index next year. VGK's current top-10 holdings are quite similar to the top-10 found in the the FTSE index and the ETF currently holds 455 stocks compared to 511 in the new index.
VGK currently holds shares of companies based in Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.
On the surface, it appears as if there are not major differences between where VGK is right now and where it is going to in terms of indexes. For those that are long this one fund, one of the marquee Europe ETFs to be sure, they are hoping for a sequel to 2012's impressive run. As of December 7, VGK was up 17.3 percent year-to-date. The good news is that VGK is up almost 0.7 percent since November 30. As of that date, VGK's new index was up almost 16.9 percent on the year, according to FTSE data.
Global X FTSE Nordic Region ETF (NYSEARCA:GXF)
Investors looking for ways to skirt eurozone headline risk only needed to look to the north in 2012. Fortunately for those savvy enough to have gotten involved with the Global X FTSE Nordic Region ETF, that did not mean sacrificing returns as this multi-country fund has surged 24 percent year-to-date.
Home to companies domiciled in Sweden, Denmark, Norway and Finland, GXF has proven durable without the controversy provided by ETFs focusing on Southern Europe.
For conservative investors looking for international developed market exposure, GXF provides exposure to steady economies and governments with AAA credit ratings and healthy balance sheets. When it comes to Europe these days, GXF is arguably nirvana.
Global X Norway ETF (NYSEARCA:NORW)
Keeping with the Nordic theme, the Global X Norway ETF has also been an admirable performer this year. With roughly the same volatility, NORW has outpaced the iShares MSCI Sweden Index Fund (NYSEARCA:EWD) by over 100 basis points.
Of course past performance is no guarantee of future results and there is some risk with NORW. Namely, it comes from the ETF's heavy allocation to the energy sector and that comes about from Norway's status as a major oil exporter. However, Norway's oil production cuts both way. It may make NORW somewhat a tad riskier than some would like, but there is a silver lining.
Norway just not produce oil, but it legitimately reaps the rewards of that production. The country has an a $600 billion sovereign wealth fund that can serve as a backstop for the economy in times of duress. Not to mention, Norway has an AAA credit rating, something the U.S. and France cannot say.
First Trust STOXX European Select Dividend Index Fund (NYSEARCA:FDD)
Given that the First Trust STOXX European Select Dividend Index Fund has a 30-day SEC yield of almost 6.5 percent, the fund is under-appreciated relative to other Europe ETFs.
The problem is that FDD has just $17.2 million in assets under management and that total is low enough to keep some at bay. FDD has also lagged the performance of other, more well-known Europe ETFs thus far in 2012. However, things are not all bad with this ETF. If risk appetite spikes in 2013, FDD is ideally positioned to thrive due to its almost 40 percent weight to financials. Clearly, a Europe ETF heavily weighted to the financial services sector implies a high degree of risk, but the aforementioned yield implies investors are at least compensated for taking that risk.
iShares MSCI Belgium Capped Investable Market Index Fund (NYSEARCA:EWK)
The iShares MSCI Belgium Capped Investable Market Index Fund has jumped almost 24 percent this year in a performance that would seem to defy all conventional wisdom. In late 2011, Belgium suffered a spate of credit downgrades.
In fact, EWK was such a laggard last year that it was outpaced by the iShares Spain Index Fund (NYSEARCA:EWP). How this ETF performs in 2013 is going to be interesting to watch and there are two big reasons why. First, the latest Belgian budget raised investment taxes and takes steps to curb wage inflation there because Belgian wage growth has outpaced that seen in Germany and the Netherlands in recent years.
Second, EWK's 2012 performance has been driven in large part by Anhueser-Busch InBev. That stock is up almost 44 percent year-to-date and accounts for over 22 percent of EWK's weight. With ETFs, that type of dependence on one stock works until it does not.
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