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TheStreet.com Ratings: Four Excellent Euro ETFs

Exchange-traded funds with an international outlook have enjoyed better returns than their U.S.-focused counterparts for several years now, a trend that TheStreet.com Ratings staff has been monitoring since June 2003.

For the period ended Sept. 30, our models indicate that from the universe of more than 800 closed-end funds that we rate -- which includes some 195 exchange-traded funds -- the top four performers are focused squarely on Europe.

Those four ETFs, in order of their ranking, are the iShares MSCI Austria Index Fund (EWO), the iShares Belgium Index Fund (EWK), the iShares MSCI Spain Index Fund (EWP) and the iShares MSCI Sweden Index Fund (EWD).

In addition to their European focus, these ETFs all carry a heavy weighting toward the banking sector in their particular regions.

Globally, the banking sector is performing well, and many of TheStreet.com Ratings' top-rated funds have substantial holdings in the area.

Investors who want to diversify into the European region may look at taking a position in each of these country funds. More risk-tolerant investors might want to limit their holdings to the Spain and Sweden funds, thereby investing in the two fastest-growing economies.

An alternative approach would be exposure to the Swedish fund only.

Let's look at fund performance as of Oct. 12. The four ETFs seek to provide results that correspond to the price and yield performance of their respective MSCI indices, whose returns also are shown.

The indices track the broader market of each country.


Euro Returns
It's been lucrative to look overseas
Austria Time Period Performance
EWO MSCI Austria Index
One-Week 1.52% 1.3%
One-Month 4.92 4.73
Three-Month 3.23 3.34
YTD 15.91 15.53
One-Year 23.88 22.9
Three-Year 41.85 42.79
Five-Year 35.98 35.12
Belgium EWK MSCI Belgium Index
One-Week 0.37 0.57
1 Month 6.13 6.13
Three-Month 13.27 13.15
YTD 26.18 26.81
One-Year 32.92 32.58
Three-Year 30.89 31.09
Five-Year 20.73 18.93
Spain EWP MSCI Spain Index
One-Week 1.17 1.05
One-Month 8.35 9.16
Three-Month 15.65 15.44
YTD 34.2 34.42
One-Year 33.33 32.45
Three-Year 28.8 29.23
Five-Year 22.2 21.44
Sweden EWD MSCI Sweden Index
One-Week 2.51 2.6
One-Month 8.05 7.68
Three-Month 15.89 14.56
YTD 25.95 25.31
One-Year 33.89 32.09
Three-Year 28.53 28.66
Five-Year 20.53 19.61
Source: Bloomberg



Let's look at the sector allocations for each of these funds as of Sept. 30:


Sector Breakdown
EWO - Austria Sector Percentage
Banks 24.52%
Real Estate 14.73%
Telecommunications 14.28%
Energy 13.87%
Materials 12.39%
Capital Goods 7.80%
Utilities 5.85%
Insurance 3.50%
Transportation 1.90%
Consumer Services 0.94%
EWK - Belgium Sector Percentage
Diversified Financials 33.30%
Banks 23.14%
Materials 9.12%
Telecommunications 7.14%
Food & Staples 7.04%
Food Beverage & Tobacco 5.10%
Real Estate 4.40%
Pharma/Biotech 4.26%
Consumer Durables & Apparels 1.46%
Capital Goods 1.19%
EWP - Spain Sector Percentage
Banks 38.59%
Utilities 17.07%
Telecommunications 15.47%
Capital Goods 8.49%
Energy 4.96%
Food Beverage & Tobacco 4.03%
Transportation 2.67%
Retailing 2.49%
Materials 1.38%
Media 0.95%
EWD - Sweden Sector Percentage
Capital Goods 25.92%
Banks 18.89%
Tech Hardware & Equipment 18.18%
Materials 7.68%
Retailing 7.61%
Telecommunications 5.38%
Consumer Durables & Apparel 2.68%
Health Care Equipment & Services 2.52%
Commercial Services & Supplies 2.06%
Real Estate 2.01%
Source: iShares .com



While the iShares MSCI Austria Fund is currently our top-rated ETF due to its superior three- and five-year performance, there is growing evidence that there will be a changing of the guard in the coming months.

As the tables show, the iShares MSCI Sweden Index Fund and the iShares MSCI Spain Index Fund are both recording better short-term results. So if that trend continues, it is likely that either Sweden or Spain would take the top-rated spot from Austria, and that Belgium and Austria would rank third and fourth, respectively.

These funds, as noted, generally track the economic performances of their countries of focus, so let's take a look at some statistics.


A Macro Look
GDP Consumer Prices Federal Budget Current Account % GDP Jobless rate GDP Approximate
Austria 2% 1.8% -1.4% 1.2% 4.6% $307 billion
Belgium 2.8 1.2 0.7 2.7 8.6 $ 372 billion
Spain 3.7 2.9 1.1 -7.4 13 $1.12 trillion
Sweden 5.1 1.5 2.2 6 5.7 $359 billion



Spain has the biggest economy of the four countries, with a gross domestic product three to four times larger than the others, but Sweden boasts stronger economic figures.

Sweden's GDP growth rate is higher, its consumer prices growth is low, it has the highest federal budget surplus -- 2.2% of GDP -- and the highest current account surplus, at 6%. A jobless rate of 5.7% rounds out a very impressive set of economic statistics.

Sam Patel, CFA, is the manager of mutual fund research for the TheStreet.com Ratings.

In keeping with TSC's Investment Policy, employees of TheStreet.com Ratings with access to pre-publication ratings data must pre-clear any potential trade through the legal department, and are prohibited from trading any security that is the subject of an unpublished rating revision until the second business day after the rating is published.

While Patel cannot provide investment advice or recommendations, he appreciates your feedback; click here to send him an email.

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