Germany Posts Near Record Budget Surplus: ETFs In Focus

Germany, Euro zone’s largest economy, posted a strong budget surplus of 18.3 billion euros in the January-June 2017 period, per German Federal Statistical Office (Destatis). Other than this, the surplus was higher only in 2000, when it reached 28.8 billion Euros.

The strong data was primarily due to higher tax revenues, low unemployment and strong economic sentiment. Germany’s seasonally adjusted harmonized unemployment rate declined to 3.8% in June 2017 from 3.9% in the previous month.

German GDP increased 0.6% in the second quarter of 2017. Although it missed the 0.7% expected by economists in a Bloomberg survey, the Federal Statistics Office revised first-quarter GDP to 0.7%. It grew 2.1% year over year in the second quarter.

The timing of this release could not have been better for Angela Merkel. This comes weeks before the new Chancellor is elected. Germany goes to polls in September to choose its next Chancellor, which has already created political uncertainty in the region.

However, people are confident because polls show Angela Merkel securing a comfortable victory in the elections. GfK Consumer confidence in Germany increased to 10.8 in August compared with 10.6 in July, and above expectations of 10.6.

Moreover, Germany’s business climate index calculated by Ifo beat market expectations in August. Although it declined marginally to 115.9 from 116 in the previous month, it was still above market expectations of a drop to 115.5. Businesses remain optimistic of future months (read: German Industrial Output Falls: ETFs in Focus).

Let us now discuss a few ETFs that are primarily focused on providing exposure to German equities (see all European Equity ETFs here).

iShares Currency Hedged MSCI Germany ETF HEWG

This fund is an appropriate bet for those looking to gain exposure to Germany without betting on the euro and is the hedged version of EWG. We believe it is best to remain hedged to the currency till political uncertainty in the region is dealt with.

HEWG has AUM of $798.07 million and charges 53 basis points in fees per year. Consumer Discretionary, Financials and Materials are the top three sectors of this fund, with 18.22%, 15.58% and 14.27% allocation, respectively (as of August 24, 2017). The top three holdings of EWG are Bayer AG (DE:BAYGN), SAP and Siemens AG (DE:SIEGn) with 7.85%, 7.68% and 7.53% exposure, respectively (as of August 24, 2017). HEWG has returned 4.64% year to date and 13.19% in the last one year (as of August 25, 2017). As such, HEWG currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

WisdomTree Germany Hedged Equity Fund DXGE

This fund seeks to provide exposure to German equities without betting on the euro.

DXGE has AUM of $117.75 million and charges 48 basis points in fees per year. Consumer Discretionary, Industrials and Financials are the top three sectors of this fund, with 23.50%, 18.05% and 17.11% allocation, respectively (as of August 25, 2017). From an individual holdings perspective, Allianz (DE:ALVG) SE, Daimler AG (DE:DAIGn) and BASF SE (DE:BASFN) are the top three holdings of the fund, with 6.71%, 5.66% and 5.62% allocation, respectively (as of August 25, 2017). It has returned 5.97% year to date and 15.45% in the last one year (as of August 25, 2017). As such, DXGE currently has a Zacks ETF Rank #3 with a Medium risk outlook.

Deutsche X-trackers MSCI Germany Hedged Equity ETF DBGR

This fund seeks to provide exposure to German equities while hedging away currency risk.

DBGR has AUM of $53.30 million and charges 45 basis points in fees per year. Consumer Discretionary, Financials and Basic Materials are the top three sectors of this fund, with 18%, 15% and 14% allocation, respectively. From an individual holdings perspective, Bayer AG, SAP SE (DE:SAPG) and Siemens AG are the top three holdings of the fund, with 7.71%, 7.52% and 7.38% allocation, respectively (as of August 24, 2017). It has returned 5.71% year to date and 14.29% in the last one year (as of August 25, 2017). As such, DBGR currently has a Zacks ETF Rank #3 with a Medium risk outlook.

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