Eric Dutram: With the ECB president, Mario Draghi, failing to announce more stimulus measures or similarly accommodative moves for the common currency and its many struggling members, stocks in the region are under pressure yet again. Broad European funds were down as much as 4% immediately following the news while Spanish and Italian markets were especially hard hit, losing upwards of 6% in some cases.
While equities in the region rebounded in the following session, the choppy and uncertain trading continues the rough year for the European equity markets as a whole, as many benchmarks and funds targeting the region are down more than 10% so far in 2012. In fact, some funds are actually down more than 15% including a nearly 20% loss for the iShares Spain ETF (NYSEARCA:EWP) and a similarly terrible performance out of the Global X Greek ETF (NYSEARCA:GREK).
However, despite this doom and gloom, some funds have managed to stay in the green in Europe on the year, despite the horrendous performances that many of their neighbors are seeing. In this respect, products targeting Ireland, Poland, Switzerland, and Germany, are all holding onto their positive returns, even when the market is crumbling all around them.
Yet, even these reasonably solid performances, are no match for a small group of funds that are occupying various niche sectors in the European ETF space. These products have all managed to add (roughly) 10% so far in 2012, crushing not only broad markets targeting the continent, but also outpacing various benchmarks from around the world which are generally thought to have much more impressive and better positioned economies (also readBeyond Germany: Three European ETFs Tracking Strong Countries).
Below, we have highlighted these three all-star European ETFs which have managed to rise above the turmoil and post strong gains so far in 2012. While these incredible performances may not continue, especially if Europe continues to crumble, any one of them could be interesting plays for investors looking to stay exposed to Europe but only in the region’s potentially strongest and most resilient market corners:
iShares FTSE EPRA/NAREIT Europe Index Fund (NASDAQ:IFEU)
Although it targets real estate in Europe, IFEU has been one of the top performers so far in 2012 in the European ETF category. The product has managed to act as a relative safe haven despite the ongoing broad euro zone troubles that have threatened many of the sector’s banking counterparts.
It also doesn’t hurt that the ETF has more than half of its assets denominated in currencies beside the euro while the yield north of 5% certainly helps as well. In fact, euros account for just 45% of the total exposure while British, Swedish, and Swiss assets combined make up 55% of the fund (see Real Estate ETFs: Unexpected Safe Haven).
Thanks to this tilt away from the euro, the product is actually up close to 10.5% on the year, pretty impressive considering the broad euro zone fund has lost about 5.7% in the same time frame. However, investors should note that volume and AUM is extremely light in this product, as under 4,000 shares change hands in a normal day, suggesting pretty wide bid ask spreads and more in total trading costs beyond the fund’s 48 basis point expense ratio.
Global X FTSE Nordic Region ETF (NYSEARCA:GXF)
For another ETF that is in Europe but doesn’t have a great deal of exposure to the euro directly, investors could consider Global X’s GXF. The fund targets the four countries of the Nordic Region—Sweden, Denmark, Norway, and Finland—giving investors broad exposure to this often overlooked corner of the world.
In total, the fund provides exposure to about 30 companies from these four nations while charging 50 basis points a year in fees. Sector exposure is tilted towards financials at 28% while industrials and health care also make up sizable chunks as well (close to one-third for these two sectors).
Still, thanks to a variety of currencies in the region and generally strong economies, the fund has been able to do quite well, allocating just under 10% to euro assets. This approach has allowed GXF to gain roughly 11.5% since the start of the year and have the best performance of the funds on this list from a 52 week look as well (read Norway ETFs for Safer European Play).
However, volume is pretty low at about 12,500 shares in a normal session while banks do account for the biggest industry in GXF. While this hasn’t mattered too much so far, it could hamper the fund’s overall return going forward, especially for those looking to trade in and out of this relatively illiquid product.
Market Vectors Germany Small Cap ETF (NYSEARCA:GERJ)
One of the few winners in the broad European market comes from the industrial powerhouse of the region, Germany. The country’s economy has held up better than most thanks to high quality exports and a sinking euro which has made the nation’s goods that much more competitive on the world stage.
While the multinationals in the country haven’t held up too well, investors have seen strength in pint sized securities in the nation, as represented by the Market Vectors Germany Small Cap ETF (GERJ). This product holds about 90 securities that are small caps and are based in the central European nation, giving broad basket exposure to the region.
Due to the small cap nature, exposure is also tilted away from financials and is instead in sectors like industrials, real estate, and technology, further helping the fund stay afloat in this rough economic climate. Additionally, a targeted approach to blend securities has also helped to cut down on volatility as opposed to a heavy focus on growth instead (read The Comprehensive Guide to German ETF Investing).
With this portfolio, GERJ has added about 10.5% so far in 2012, crushing broad benchmarks and even large cap German ETFs as well. However, like other funds on this list, volume is quite low and with expenses at 55 basis points a year, total costs could be quite steep when taking into account the relatively wide bid ask spreads.
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