The European economy, which was shunned by investors for the last couple of years, is gradually attracting a lot of investor interest. This is especially true as the European economy is showing signs of an enhanced economic outlook. The region’s manufacturing and service sectors are coming back to life, with consumer confidence on an uptrend.
This broad based recovery is benefiting other Euro zone members as well. Belgium, a relatively small country both in terms of population as well as geographical area, is also showing signs of a gradual recovery.
The economy is characterized by high levels of economic freedom and industrialization. Ranked among the world’s top 20 trading nations, Belgium is an export oriented economy with exports contributing two-thirds of gross domestic product (GDP).
Moreover, since 80% of Belgium’s trade partners are also Euro zone members, the Euro zone recovery is expected to give a boost to Belgium’s export sector as well.
The recent preliminary economic growth numbers released by the National Bank of Belgium also supported this trend. Belgium's economy expanded 0.4% sequentially in the first quarter of 2014, after expanding 0.3% in each of the previous two quarters. The GDP growth for the first quarter of 2014 marked the fourth consecutive quarterly rise.
In fact, the latest pace of growth is the strongest since the first quarter of 2011. During that quarter the economy expanded at the rate of 0.8% (read: Top European ETF to Play the Portugal Bailout Exit).
The steady recovery within the nation was also reflected in the country’s Industrial Production data. This indicator in Belgium jumped 10.3% year over year during February compared with 4.87% growth in January. In fact, February’s boost was the highest in more than two years.
However, the Belgium economy too has its share of problems. The country needs to address its problem of high current account deficit and rising wage costs.
The rise in wage costs is hitting exports in some sectors such as chemicals and pharmaceuticals. Moreover, the unemployment rate stands at a sticky 8.5%, though this is lower than most other European countries.
Nonetheless, Belgium’s latest GDP and industrial production figures signal that a gradual recovery in the economy is shaping up. Thus, given the bright prospects of the Belgian economy, a look at the top ranked Belgium ETF will be a good idea to capture the surge, especially considering its solid Zacks ETF Rank.
About the Zacks ETF Rank
The Zacks ETF Rank provides a recommendation for the ETF in the context of our outlook for the underlying industry, sector, style box or asset class (Read: Zacks ETF Rank Guide).
The aim of our models is to select the best ETFs within each risk category. We assign each ETF one of the five ranks within each risk bucket. Thus, the Zacks ETF Rank reflects the expected return of an ETF relative to other products with a similar level of risk.
For investors seeking to apply this methodology to their portfolio in the European Equity ETF space, we have taken a closer look at the top ranked iShares MSCI Belgium Capped ETF ((EWK - ETF report)). This ETF has a Zacks ETF Rank of 2 or ‘Buy’ and is detailed below (see all European Equity ETF here).
iShares MSCI Belgium Capped ETF (EWK - ETF report)
Launched in March 1996, EWK tracks the MSCI Belgium IMI 25/50, managing an asset base of $75.7 million.
The ETF provides exposure across the entire spectrum of market capitalization and holds a basket of 43 securities. However, the fund is quite heavily exposed to its top holding, Anheuser Busch Inbev SA, which alone occupies more than one-fifth of fund assets. KBC Groep SA occupies the second spot having 7.91% exposure in the fund.
Sector-wise, Financials has the highest allocation in the fund forming 27.22% of assets. Materials and Healthcare sectors also have decent exposure in the fund, though the fund has light exposure to the Energy and Utilities sectors.
The fund also has a combination of growth and value stocks. EWK allocates 41% towards growth stocks, 37% to stocks having both the characteristics, and the rest to value securities (read: 3 Low Correlated ETFs Surging in Shaky Markets).
The fund charges 53 basis points as annual fees, which is on par with the average category expense ratio.
As far as performance is concerned, the fund has a good track record. The fund has returned 28% in the past one year, while returning a compounded 128% in the last five years. Also, the fund has gained 6.9% since the start of the year, suggesting it may be a solid way to play a European surge that many investors may have overlooked until now.
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