7 ETFs For The Best Country Brands
Wed, Nov 21, 8:16 AM ET, by Michael Johnston
In a global environment riddled with uncertainties and looming debt burdens, it isn’t always the biggest or fastest growing economies that lure investors. Going beyond gross domestic product data, international investors often find themselves flocking to destinations that boast “safe haven” reputations, and not necessarily the most attractive balance sheets. In an effort to more accurately pinpoint people’s sentiment regarding specific nations, FutureBrand has constructed an annual Country Brand Index, which incorporates a multitude of factors that go beyond traditional economic metrics [see also ETFs For The World's Most Valuable Emerging Market Brands].
A nation’s reputation, or its brand, stands to offer valuable insights into how potential investors will evaluate opportunities in that country’s market. The Country Brand Index, CBI for short, ranks countries by their perceived brand value as determined by performances across five key dimensions, including: value system, quality of life, good for business, heritage and culture, and tourism. The CBI encapsulates everything from the nation’s cultures, to their industries, to their economic vitality and public policy initiatives, thereby resulting in a viable benchmark that may potentially assist investors with evaluating prospective opportunities overseas [Free Download: How To Pick The Right ETF Every Time].
The rapid growth of the ETF industry has spawned countless instruments over the last few years that make it easy and cost-efficient for mainstream investors to tap into virtually any foreign market. As such, we highlight seven ways to play the seven highest ranking country brands (in descending order) from FutureBrand’s 2012-2013 Country Brand Index Report. Please note that the funds profiled below are not necessarily the most popular ETFs by assets under management targeting each respective country; investors may use our Free ETF Country Exposure Tool to see a list of every option available for accessing a given country.
Moving up from the number 11 spot last year, this economic powerhouse has remained incredibly resilient while most of its neighbors are struggling to pay the bills so to say. While it isn’t the biggest fund offering exposure to German equities, Van Eck’s Market Vectors Germany Small-Cap ETF (GERJ, C+) certainly warrants a closer look. This ETF holds nearly 90 small-cap securities that generate at least 50% of their revenues in Germany, presenting itself a viable “pure play” for those looking to steer clear of funds heavy in large-cap, multinational firms; top holdings by sector include industrials, consumer cyclicals and real estate.
The commodity-rich island nation boasts a high standard of living along with favorable trade relations with booming China. WisdomTree offers a creative approach to accessing the country’s market through the Australia Dividend Fund (AUSE, A-). This ETF is a great alternative to traditional market cap-weighted products, as it instead relies on a fundamentally-weighted index that captures the performance of high-dividend yielding companies in Australia. AUSE had a recent SEC 30-day yield of 5.19%, and its top three allocations by sector include financial services, consumer cyclicals and consumer defensives [see 8% Yield ETFdb Portfolio].
This small but prosperous Pacific island comes in just ahead of its larger Aussie neighbor in the brand rankings. Since launching in late 2010, the iShares MSCI New Zealand Investable Market Index Fund (ENZL, A) remains the best instrument for establishing direct exposure to this nation’s equity market. Investors should note, however, that this ETF is quite top-heavy, and may potentially bear worrisome company-specific risk; ENZL holds 25 securities in total and the top-ten holdings alone account for over two-thirds of total assets.
Moving up from the number seven spot last year, Sweden now ranks number four on the CBI thanks to its separate currency, prudent fiscal policy, and impressive life expectancy. The iShares MSCI Sweden Index Fund (EWD, A-) has managed to attract nearly $340 million in assets under management since launching in 1996, showcasing investors’ interest in this Nordic “safe haven.” EWD’s underlying portfolio is a bit shallow as it is comprised of about 40 securities in total, with top allocations by sector going to industrials, financial services, and consumer cyclicals [see also Euro Free Europe ETFdb Portfolio].
Japan makes its way into the top three brands as this exporting-giant continues to hold a key role on the global economic stage while its ability to recovery from natural disasters only adds to its resilient reputation. Investors looking to tap into this developed economy, but who are worried about the inherently wild fluctuations between the U.S dollar and the Japanese yen in the currency market, ought to take a closer look at DBX’s MSCI Japan Currency-Hedged Equity Fund (DBJP, B-). As its name suggests, this ETF takes the currency-risk associated with foreign investments outside of the equation; DBJP gives investors pure exposure to the performance of Japan’s equity market by using forward contracts to mitigate exposure to fluctuations between the greenback and the yen [see How To Invest Overseas Without Currency Risk].
This commodity-rich nation takes the number two spot after ranking at the top of the list for the past two years. The Global X Canada Preferred ETF (CNPF, C+) is an intriguing instrument that targets an asset class known for exhibiting bond-like volatility, generating current income, and maintaining upside potential. CNPF had a recent SEC 30-day yield of 3.82%, and its top three allocations by sector include financials, energy and telecommunications [see 3 Unique, High-Yielding Preferred Stock ETFs].
With a reputation built around economic, cultural and social stability, it’s no big surprise that Switzerland’s country brand ranks at the crown of the list. The First Trust Switzerland AlphaDEX Fund (FSZ, C) employs a proprietary methodology that uses a host of fundamental growth and value factors to selects stocks instead of relying on a traditional market cap-weighted approach. FSZ’s top three holdings by sector include industrials, financial services, and basic materials with a definitive tilt towards mid-cap securities.
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Disclosure: No positions at time of writing.
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