US-Listed ETFs Sorted by Asset Class and Year-to-Date Return

March 6, 2009 lows. iShares’ EWG has
returned 87 percent since that bottom,
comparing favorably to broader international
stocks as represented by the widely
followed iShares MSCI EAFE Index Fund
(NYSE Arca: EFA), which returned “just”
72 percent in that time period.
EWG has been the only choice for Germanophiles
for a long time, and as such,
has amassed $3 billion in assets. It’s broadly
diversified, and captures all the important
sectors of the German economy.
“EWG is pretty diverse,” said Matthew
McCall, president of Penn Financial
Group LLC and noted sector-focused
advisor. “You have financials, consumer
discretionary, industrials and materials all
between 15-20 percent, although you
do have a heavy focus on services within
those top four sectors.”
Although the fund is a fair representation
of the German economy, it’s
heavily concentrated: 62 percent of the
fund’s assets are invested in the top 10
holdings, and the average market cap
is $50 billion. The top 10 holdings are
large multinational companies that derive
the majority of their revenues in
foreign countries. This is in line with the
economic fundamentals of the German
economy, which has the third-largest
current account surplus in the world.
The launch of Van Eck’s new small-cap
fund (GERJ) gives investors a new way to
play. The same firm also has a Germany
midcap ETF in registration.
Whether these funds catch on is largely
dependent on whether they provide a
true alternative.
“Will the new funds focus on companies
that are Germany specific?” asked
McCall prior to GERJ’s launch. “Will
they focus on the German consumer
and the German economy, or will they
be more like EWG, which owns large
multinational firms like Siemens, BASF,
Allianz and Baer?”
GERJ’s small-cap focus could serve
it very well on these vectors, attracting
investors who might be daunted by the
top-heavy nature of Germany’s large-cap
market. With roughly 90 components,
GERJ’s top 10 holdings are just a third of
the total portfolio, and the fund clearly
has a much more diversified distribution
across its holdings than EWG.
Moreover, with 70 percent of German
workers employed by small-cap
companies (according to Van Eck), GERJ
should be providing access to the “real”
Germany, with less of the international
noise seen by EWG—though it should
be noted that there are multinationals in
GERJ’s portfolio.
However, the fund is less diversified in
terms of sectors, with nearly 35 percent
of its portfolio invested in industrials. The
rest of the fund’s top five sector weights
range from a 15.8 percent weighting in
information technology to a 9.7 percent
weighting in health care, with consumer
discretionary and financials falling between
those two. Aside from materials,
with a 9.5 percent weight, the remaining
four sectors represented in the fund all
have weights of 2.2 percent or less.
Financials, consumer discretionary,
industrials, materials, health care and
Figure 1
Two ETFs Target Germany’s Markets
Figure 2
FUND
Sources: ETF issuers; data as of April 6, 2011.
Sector Weights: GERJ vs. EWG
GERJ
Sources: ETF issuers; data as of April 7, 2011.
iSHARES MSCI
GERMANY
utilities are all top sectors in EWG, with
weights ranging from 9.1 percent for
utilities to roughly 18.5 percent for financials.
The remaining three sectors
with any significant representation in the
fund have weights ranging from 3.7 to
6.6 percent.
With these allocations, there’s little
doubt that GERJ will rise and fall more
on the fate of Germany alone than the
health of the eurozone.
For investors, that makes the decision
about where to invest a simpler one
than it used to be. If your investment
thesis is that Germany will anchor recovery
throughout the eurozone, and that
German multinationals will drive global
growth, then EWG is the logical choice
to express that opinion. If you believe the
resilience of the German economy will
make it an island in a faltering Europe,
then GERJ is more likely to deliver.
MARKET VECTORS
GERMANY SMALL-CAP
Ticker EWG GERJ
Exp Ratio 0.53% 0.55%
Assets (M) $2,918.7 $2.5
Largest Holding Siemens AG, 11.2% MTU Aero Engines, 4.2%
Inception 3/12/1996 4/4/2011
EWG
Industrials 34.5% Financials 18.5%
Information Technology 15.8% Consumer Discretionary 16.6%
Consumer Discretionary 14.9% Industrials 16.2%
Financials 12.5% Materials 15.2%
Health Care 9.7% Health Care 10.1%
Materials 9.5% Utilities 9.1%
Telecommunications 2.2% Information Technology 6.6%
Consumer Staples 0.5% Telecommunications 3.9%
Energy 0.2% Consumer Staples 3.7%
Utilties 0.2% Other/Undefined 0.2%
8 ETFR • May 2011