European ETF Showdown – VGK, DFE, FEZ

| August 14, 2013 | 0 Comments

European stocksIn today’s ETF showdown, we’re taking a look at European stock ETFs.

As you know, ETF providers like iShares, State Street, ProShares, and many others offer ETFs that sound similar.  But just because they have a similar name doesn’t mean they’ll have the same performance.

When your hard-earned money is on the line, selecting the right ETF is crucial to maximizing your profits and minimizing your losses. 

One thing’s for sure, there’s no shortage of ETFs focused on European stocks.  And with Europe showing signs it’s on the verge of emerging from recession, investors are looking to add exposure to European stocks. 

Let’s take a look at three popular ETFs that hit the entire spectrum of stocks in developed Europe… 

The 300-pound gorilla in European ETFs is the Vanguard FTSE Europe ETF (VGK).  It has a whopping $7.6 billion in AUM (Assets Under Management).  That’s more than double the amount of assets as the next biggest ETF in the space.

VGK’s 9.3% gain this year is just average among other European ETFs.  But it ranks at the top in several other important categories.

Like many other Vanguard ETFs, VGK has a low expense ratio of just 0.12%.  It also has the fattest dividend with a 3.23% annual dividend yield.   

It tracks an index made up of approximately 504 common stocks of companies located in major European countries.   The broad exposure, low expenses, and fat dividend have clearly made this ETF popular among investors.

Next let’s look at WisdomTree Europe SmallCap Dividend Fund (DFE).  As the name suggests, DFE has a different approach to investing in Europe than VGK. 

The $85 million in AUM DFE holds is a fraction of VGK.  But its 16.4% year-to-date gain has outperformed VGK by more than 7%!  And its 3.3% annual dividend yield is slightly better than VGK.  

DFE tracks a fundamentally weighted index that measures the performance of the small-capitalization segment of the European dividend-paying market. 

It’s not surprising to see DFE outperforming VGK as Europe nears the end of recession.  Small-cap stocks are typically more volatile than large-caps, and when things are improving, they should post bigger gains.  But the fact that DFE’s dividend yield is outpacing VGK is surprising.  

This looks like a winning combination that could fuel a tremendous amount of upside in DFE as Europe returns to economic growth.

Finally, let’s look at the SPDR EURO STOXX 50 ETF (FEZ).  This popular ETF has over $1 billion in AUM.

So far this year FEZ has lagged behind other broad developed Europe ETFs.  It’s only managed a 7.3% gain year-to-date. 

The reason for the lack of performance is simple… the index FEZ tracks is made up of just 55 stocks.  And 25% of them are financials.

It’s no secret the credit crisis and recession have left many European financial companies on the brink of going belly up.  And even though a major crisis has been averted, these stocks face a long road back. 

So FEZ and any other ETFs that are heavily weighted toward European financial stocks will likely lag behind ETFs with less exposure. 

Here’s the bottom line…

European stocks are bound to be hot as the EuroZone recession comes to an end.  The wide selection of European stock ETFs give you plenty options to invest in this recovery.  Just make sure to find out what the ETF actually owns before taking the plunge.

Good Investing,

Corey Williams

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Category: ETFs, Foreign Market ETFs

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets three times a week. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

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