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Although investors had a temporary respite from the European debacle earlier this year, the continent’s debt woes are once again dominating the market headlines. In particular, Greece and their collapsing economy has been in focus, largely due to the high levels of uncertainty created by the country’s inconclusive election and the high probability of more trips to the ballot box in the nation’s near future.
Thanks to this uncertainty, and the increased possibility that Greece may leave the euro zone, the Greek ETF has been one of the worst European ETF performers over the past month and in year-to-date terms as well. In fact, the product is now down more than 23% in YTD terms, slightly outpacing the other major PIIGS nations of Spain and Italy in the time frame (see more in the Zacks ETF Center).
Yet, overall, European ETF performance has been all across the board during 2012 so far with many funds tumbling more than 10% since the start of the year, while others have actually managed to stay in the green during the troubling time.
While this group of funds that has managed to stay in the positives for 2012 is small, it is a pretty varied group that could be of great interest to many European focused investors. These funds may represent some of the strongest European ETFs that are best able to weather the storm or it could also represent the regions that are most likely to face turmoil next (see Three Financial ETFs That Avoid Big Bank Stocks).
Below, we highlight three of the top European ETF performers from this small group, all of which have added at least 5% so far this year. Any of these funds represent the cream of the crop in terms of gains this year and could make for an interesting trade heading into the rest of 2012 for risk tolerant investors:
iShares MSCI Ireland Capped Investable Market Index Fund (EIRL - ETF report)
Despite being a member of the PIIGS bloc, Irish securities have managed to perform quite well so far in 2012. In fact, EIRL is actually up more than 6.5% so far this year, easily outpacing the other four members of the dubious group (read Will The Luck Of The Irish ETF Continue?).
This is even more remarkable when one considers that that the fund’s top holding, CRH PLC, which makes up 20% of the fund, is down close to 10% this year while its second biggest holding is also down on the year as well. However, beyond these two losers, every other security in the portfolio is up on the year, including seven double digit performers in the top ten alone.
Thanks to this strength, the Irish ETF has managed to buck the trend in the European ETF world and ride the wave to gains for the time period. Additionally, the fund’s sector breakdown is also skewed towards traditionally safe sectors as consumer staples and health care make up, respectively, 26% and 14% of the fund, giving the product a tilt towards less risky securities.
Market Vectors Germany Small-Cap ETF (GERJ - ETF report)
Germany continues to be one of the strongest nations from an economic perspective in Europe so it isn’t surprising to find one of its funds on the list. However, it may be somewhat of a shock to see that the small cap Germany ETF, GERJ, has been the better performer so far in 2012, adding over 7.6% so far this year.
Seemingly, investors have focused on the small cap space in this market segment as a way to play the strength in the German economy without too much focus on the peripheral nations. This is because small caps tend to have more of a domestic focus while large cap firms-- such as Siemens, BASF, and SAP in the case of Germany—tend to have much more international exposure (read German ETFs On The Rise).
In other words, by looking at GERJ instead of other German ETFs, investors can get at the heart of the German economy without too much auxiliary exposure to other nations in the region. The product’s sector breakdown hasn’t hurt either as consumer, industrial, real estate, and technology take the top four spots, while the often troubled financial space accounts for just 2% of the total assets.
iShares FTSE EPRA/NAREIT Europe Index Fund (IFEU - ETF report)
Even with the uncertain business climate across Europe, it hasn’t exactly been a terrible time to invest in real estate focused ETFs in the region. For example, IFEU is actually the best performing European ETF so far in 2012 having added more than 8% so far this year while paying out a modest 1.6% in yield to investors.
Possibly even more surprising is the sector breakdown of the fund as the product has a heavy tilt towards retail and industrial/office REITs. These two segments account for nearly 62% of the total exposure in the fund, representing the lion’s share of assets in the ETF (see Real Estate ETFs: Unexpected Safe Haven).
At least part of the reason for the strong performance has to be due to the country exposure in the fund and which nations the product generally avoids. The UK takes the top spot at 37% of assets while other non-euro using nations such as Switzerland (7%), Sweden (7%), and Norway (1%), combine to take up a decent chunk of assets as well.
Beyond this, the euro zone exposure is pretty solid too as France, the Netherlands, and Germany are the biggest three nations from a country perspective. Meanwhile, there aren’t any firms that are based in any of the PIIGS nations, possibly another big reason for why IFEU has held up so strongly despite the broad European weakness to start 2012.
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