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While the calendar may have changed to 2012, some things have not changed, namely, the focus on the euro zone and its never-ending debt crisis. The turmoil in the region is now beginning to stretch into the third year and talk of default or euro bonds are seemingly always in the headlines. Although the crisis seems under control for the time being, a flare up is certainly not out of the question later this year, especially if major European economies, such as Italy or Spain, have trouble finding buyers for their debt.
As a result, many investors have decided to look beyond the zone for developed market European exposure, focusing in on nations that have shunned the adoption of the euro as their national currency. While the pickings are certainly slim, a number of stalwarts have resisted the temptation to join the bloc in years past and are now likely glad that they dodged this bullet. Generally speaking, these countries have managed to skirt by most of the issues that many of their euro brethren have experienced over the past few years and have seen better performances out of their stock markets thanks to this lower level of currency risk (also read Hungarian Crisis Crushes The Austria ETF).
Yet, that isn’t to say that these markets are riskless; quite to the contrary, these markets still do a great deal of business with euro zone members and their banks have sizable chunks of exposure to member nations. Many investors have overlooked this for the time being, however, as the focus has been on the flexibility offered by having your own central bank and the policy options that this entails (see Top Three Currency ETFs).
Thanks to this, many non-euro markets could serve as lower risk (but possibly lower reward as well) choices in 2012 for most investors. This could prove to be ideal if we see another bout of worry over the euro crisis, and given the trend over the past few years this is certainly within the realm of possibilities. So for investors looking for European exposure but are still wary about buying up euro-denominated assets, any of the following European ETFs could make for excellent picks:
iShares MSCI United Kingdom Index Fund (EWU - ETF report)
This ultra-popular ETF, which has over $1.2 billion in AUM, tracks the MSCI United Kingdom Index, a benchmark that gives broad exposure to companies traded in the British equity market. The fund holds 106 securities in total and has heavy exposure to energy (21.7%), consumer staples (16.6%), and financials (16.3%). Top securities include Vodafone Group (VOD - Analyst Report), HSBC Holdings (HBC - Analyst Report), and BP (BP - Analyst Report) while close to 48% of assets are in the top ten securities, suggesting that the product is top heavy. Nevertheless, the fund has broadly outperformed the main proxy for euro zone equity performance, EZU, as EWU has lost 9.3% in the past six months while EZU has tumbled by over three times as much finishing the period down 28% (also read EUFN: The Best ETF For The Euro Crisis).
iShares MSCI Switzerland Index Fund (EWL - ETF report)
For a more traditional safe haven play, investors should consider taking a closer look at this popular fund tracking the Swiss equity market. The ETF holds 40 securities in total giving investors concentrated exposure to the largest firms based in Switzerland. In fact, three securities, Nestle (NSRGY), Novartis (NVS - Snapshot Report), and Roche Holdings (RHHBY), combine to make up close to fifty percent of the total portfolio and 75% of total assets go to the top ten holdings. In terms of sectors, health care (30.9%), consumer staples (25.7%), and financials (17.3%) take up the top three spots while energy and telecom take up the two smallest allocations in the fund, combining to make up less than 3% of assets. In terms of performance, EWL has also outperformed EZU, although less so than its British counterpart; over the past six months EWL has lost 14.9% (also read Ten Best New ETFs of 2011).
Global X FTSE Norway 30 ETF (NORW - ETF report)
For a Scandinavian play outside of the euro, investors should consider this fund from Global X. The product tracks the FTSE Norway 30 Index, giving investors access to 30 of the largest firms that trade on the Oslo market. In terms of concentration, investors should note that energy dominates the portfolio making up close to 40% of total assets while financials (16.2%), and basic materials (12.2%) round out the top three. Meanwhile, from an individual security perspective, Statoil (STO - Analyst Report) makes up over 22% of the total assets while Telenor (TELNY) and DNB Nor (DNBHF) also receive double digit allocations as well. Clearly, the product is more tilted towards the commodity sectors than the others on the list and can be more exposed to global economic developments. This has hurt the fund in 2011, pushing NORW down 22.4% over the past six month period. However, it is worth noting that this is still better—by close to 500 basis points—than the performance of EZU during the same time frame (see Forget WTI, Play Crude With This Oil ETF).
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