Germany ETF Has Some Catching Up To Do

Germany's convincing, if last minute, win in the World Cup this weekend capped a fantastic global sporting contest that probably saw the best team take home the final trophy.

Despite its fiscally conservative nature, however, the German stock market has yet to show signs of matching the success of their soccer (or football) players in 2014.

The iShares MSCI Germany ETF (NYSE:EWG) is a representative sample of 55 large and mid-cap companies, that is designed to provide targeted exposure to 85 percent of the German stock market. This ETF has over $5.2 billion in total assets and charges an annual expense ratio of 0.48 percent.

Despite a small jump to start the week, EWG has been mired in a trend-less sideways trading range, that has limited its upside this year. The total return of EWG in 2014 is -0.76 percent, which significantly lags the broader Vanguard FTSE Europe ETF (VGK) gain of 3.89 percent.

Despite this recent underperformance, EWG was actually one of the bright stars of Europe last year, when it posted a gain of 31.18 percent versus 24.35 percent in VGK.

Another way to take advantage of the German stock market is through the increasingly popular currency hedging strategy.

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The iShares Currency Hedged MSCI Germany ETF (NYSE:HEWG) and WisdomTree Germany Hedged Equity Fund (NASDAQ:DXGE) are two unique ETFs that invest in a basket of German stocks, while simultaneously shorting the Euro.

This strategy effectively eliminates the currency fluctuations that typical single-country ETFs experience and provides performance that is only attributable to stock prices. HEWG and DXGE would benefit the most when the U.S. dollar is rising versus the Euro, and would experience some drag when the Euro is appreciating in value.

To round out the countrys investable options, the iShares MSCI Germany Small-Cap ETF (OTC:EWGS) provides access to small public companies in Germany. This ETF has 111 holdings and charges an expense ratio of 0.59 percent.

While the recent price action in Germany has failed to keep pace with similar broad-based international or domestic ETFs, history suggests that this country can experience periods of strong growth. Perhaps a World Cup win will be just what this stock market needs to catch up to its peers.

Disclosure: The author owns shares of VGK at the time this article was published.

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