What are the Best Europe ETFs?

What are the Best Europe ETFs?

By, Simon Maierhofer

Friday January 23, 2015

Databases can search and sort ETFs according to region, expense ratio, assets under management, trading volume, etc. But no database will tell you the more important little intricacies that differentiate the best from the worst.

Will the European Central Bank’s QE lift European stocks? This question deserves its own article, which can be found here: Will European QE Send Stocks Soaring?

Here is a look at the top five (+1) Europe ETFs:

Top 5 Europe ETFs:

Vanguard FTSE Europe ETF (NYSEArca: VGK) – 0.12%
iShares MSCI EMU ETF (NYSEArca: EZU) – 0.48%
WisdomTree Europe Hedged Equity ETF (NYSEArca: HEDJ) – 0.58&
SPDR Euro STOXX 50 ETF (NYSEArca: FEZ) – 0.29%
iShares Europe ETF (NYSEArca: IEV) – 0.60%

ETFs are known for being inexpensive (expense ratios are listed behind the ticker), but there are factors more important than the expense ratio.

For example, the Vanguard FTSE Europe ETF and the iShares Europe ETF have a 15% exposure to Switzerland. The remaining three ETFs have virtually none.

We can’t talk about Europe ETFs and ignore the Swiss National Bank’s (SNB) massive currency move. Abandoning the 1.20 EURCHF floor caused a 15% drop in the SIX Swiss Stock Exchange.

Whether the Europe ETF of your choice includes Swiss stocks or not can make a difference going forward. I'm not necessarily advocating one over the other, but investors should be aware.

The WisdomTree Europe Hedge Fund ETF is designed to provide exposure to European equities, while at the same time neutralizing currency fluctuation.

When the euro is weak, the WisdomTree Europe Hedge Fund ETF will beat an un-hedged European equity fund, but when the euro is strong, it will underperform an un-hedged European equity fund.

I happen to believe that the euro will stage a surprising rally in the weeks/months ahead, which – if the case – will render the WisdomTree Europe Hedge Fund ETF ineffective. More detail: The Biggest Trap of European QE

A blend of the Vanguard FTSE Europe ETF and SPDR Euro STOXX 50 ETF seems like a good combination for anyone looking to own European stocks. Is now the time to own European stocks? A detailed analysis can be found here: Will Eurozone QE Send Stocks Higher?

What About Germany?

How about just buying the European leader, German stocks?

There are a number of Germany ETFs, but none of them tracks the Deutscher Aktien Index (DAX) well.

The iShares MSCI Germany ETF (NYSEArca: EWG), the biggest and most popular Germany ETF, owns 59 stocks and claims targeted access to 85% of the German stock market. However, it has a correlation of only 0.59 (on a scale from +1 to -1), and is trading 25% below its all time high, while the DAX is at an all-time high.

If there was a great Germany ETF, it might make sense to go long German stocks and short U.S. stocks (pair trade: buy EWG, sell SPY).

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

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