We think the outlook remains positive for quality stocks in the right countries, and one way to profit from that—while cutting your risk—is to invest in quality ETFs like these two.
With these funds, you benefit from two strong economies with their own national strengths and potentials. Both offer exposure to a wide range of stocks and each fund has grown significantly since its inception.
They also feature reasonable MER (management expense ratios), a key factor to consider because that measures how much you’re paying to get your investment returns.
ISHARES MSCI GERMANY FUND (New York symbol EWG) tracks the stocks in the MSCI Germany Index. Through its holdings, it aims to replicate 85% of the market capitalization of the German stock market. The remaining 15% is unavailable to foreign investors; that’s partly due to limitations on foreign ownership.
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Regardless, the ETF offers you exposure to Germany’s top stocks: SAP (software) at 13.1%; Siemens (engineering), 10.0% of assets; Allianz (insurance), 7.9%; Deutsche Telekom, 5.9%; Munich Reinsurance, 4.3%; Mercedes-Benz (autos), 3.9%; and Infineon Technologies (chips), 3.6%.
The fund began trading in 1996. Investors pay a reasonable 0.50% MER.
The German economy continues to face challenges: the war in Ukraine, which has hurt trade relations with Russia; and, more recently, continued high inflation and rising interest rates. The economic slowdown for its major trading partner, China, has also hurt exports.
Still, the country’s longer-term outlook is sound, especially when global economies expand anew. As well, supply chain bottlenecks have eased for Germany, and natural gas prices have fallen—they’re now closer to their historical averages. Further, Germany is successfully working with other EU members to reform the bloc’s electricity markets and boost energy security following Russia’s invasion of Ukraine.
ETFs: Here’s a country with lots of commodity and banking exposure
ISHARES MSCI AUSTRALIA ETF (New York symbol EWA) gives you exposure to 59 of Australia’s major stocks.
The ETF’s top holdings are BHP Group (mining) at 13.3% of assets; Commonwealth Bank of Australia, 10.6%; CSL Ltd. (biotechnology), 7.8%; National Australia Bank, 5.5%; Westpac Banking, 4.5%; ANZ Group Holdings (finance), 4.4%; Macquarie Group (financial services), 3.8%; and Wesfarmers (conglomerate), 3.7%.
By industry, the fund’s holdings break down as Financials, 33.8%; Mining, 24.2%; Health Care, 10.2%; Consumer Discretionary, 6.0%; Real Estate, 5.5%; Energy, 5.1%; Industrials, 5.1%; Consumer Staples, 4.5%; Telecoms, 2.6%; Information Technology, 1.6%; and Utilities, 1.4%.
The iShares MSCI Australia ETF started up March 12, 1996, and investors pay a reasonable 0.50% MER.
The Australian economy remains steady, amid rising international demand for minerals and a recovering tourism industry.
The overall outlook for 2024 is positive, although economic growth will likely remain muted. The main threats are still-high inflation, which is hurting consumer spending, as well as a slowdown in global growth and rising interest rates.
Meantime, though, still-solid global demand for commodities will boost exports.
That should help to offset risks such as the ongoing tension between the U.S. and China, as well as a shortage of skilled workers and rising labour costs in the service industry.
Recommendation in Canadian Wealth Advisor: iShares MSCI Germany Fund & Australia ETF are buys.
