ETF Showdown: Deutschland Battle (EWG, GERJ, EWGS)
For almost 15 years, the iShares MSCI Germany Index Fund (NYSE: EWG) was the lone Germany-specific ETF on the market. That's right. The Euro Zone's largest economy, the world's fourth-largest economy and the country that was the world's largest exporter until recently went a decade and a half with just one ETF.
That scenario changed last year when the Market Vectors Germany Small-Cap ETF (NYSE: GERJ) debuted and the influx of new ETFs to come to market this year has brought investors even more options for gaining exposure to the Euro Zone's most dependable large economy.
Sounds like we have the makings of an ETF Showdown and it's going to be Germany small-cap style between the aforementioned Market Vectors Germany Small-Cap ETF and the newly minted iShares MSCI Germany Small Cap Index Fund (BATS: EWGS).
Despite the fact that EWG has over $3 billion in assets under management, neither of the Germany small-cap ETFs are currently sporting jaw-dropping AUM totals. GERJ has $3.1 million in AUM while EWGS has almost $2.8 million in AUM, not a bad haul for just two months of trading.
The sector breakdowns for both funds won't come as surprises to investors that are familiar with Germany as both GERJ and EWGS do a good job of accurately representing this developed market economic power. Led by industrials at 29.3%, six sectors receive double-digit allocations in GERJ. The other five are (in order): consumer discretionary, technology, financials, materials and health care.
The sector lineup isn't much different in EWGS. Industrials lead the way at over 33%. In order, the next five sector weights are technology, consumer discretionary, health care, financials and materials.
With an expense ratio of 0.59%, EWGS is home to 82 stocks. GERJ charges 0.55% and is home to 95 stocks. EWGS' top-10 holdings represent over a third of the fund's total weight. GERJ's top-10 stocks account for roughly 30% of that ETF's weight. Seven stocks are found among the top-10 lineups of both funds, though with different weights.
To be sure, there is a valid fundamental case for owning either GERJ or EWGS. Germany has weathered countless storms caused by its weaker European counterparts with aplomb. The country still has a stellar credit rating. A rebounding global economy is supportive of Germany's exporters.
Domestic demand, corporate capital spending and household consumption are expected to widen the dimensions of the country's growth sources, according to Van Eck Global, parent company of Market Vectors. Unemployment in Germany is low and the country has perhaps the best growth outlook among the G7, though that might not be saying much these days.
Bottom line: There is a valid case for German small-caps, but there is clearly no need to own both of these ETFs at the same time. A larger lineup, lower expense ratio and better performance since its rival came to market make the Market Vectors Germany Small-Cap ETF the winner of this week's ETF Showdown.
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