Performance of France ETF vs Eurozone

iShares France ETF (EWQ) is an index tracking exchange trade fund tracking the MSCI France Index. It is designed as an easy way for investors to gain a exposure to large capitalized listed French companies which performance follow closely the French market and economy. ETF gives a ease of access for investors to include international exposure to the investment portfolio either country specific exposure such as EWQ or target region focus (even to an extent specific asset class across a common set of economies such as emerging market bonds or whole asset classes such as gold)

Analysis of the Top 10 holdings of the France ETF reinforces the focus on large French multinationals as the companies are almost household names most investors would know such as Total (Energy), Sanofi (Pharmaceuticals), BNP Paribas (Financials) and Airbus (Industries).

One important risk investors of EWQ should be aware of is potential concentration risk from both stock and sector perspective.

Combined holding of the top 10 companies in the ETF make up almost 50% of the fund with Total and Sanofi representing 20% of the weighing between themselves. Sector breakdown also highlights the ETF of a bias towards industrials and financials sector with sum weight of stocks in these 2 sectors adding up to 35% of the total AUM. The technology sector is the smallest sector in the France ETF at close to 3% weighting.

The beta of EWQ is estimated to be 1.4 meaning the performance of the ETF is 40% more sensitive to the return of the S&P 500 over the same period. The high beta can be attributed the French market sensitivityto the volatility from the Eurozone crisis and pricing of the underlying tracking index priced in EUR.

Investors should also be aware that EWQ does not hedge the EUR exposure. Investment in EWQ means equity risk of the French companies included in the MSCI France Index (including country risk) as well as the risk premium of the EUR/USD exchange rate.

Recent Performance of France ETF (EWQ) vs Vanguard FTSE Europe ETF (VGK)

A side by side comparison of EWQ vs VGK performance shows the France ETF underperformed the wider region significantly over the most recent 5 year timeframe.

5 Year France and Europe ETF Performance

5 Year France and Europe ETF Performance

VGK (15% of portfolio also invested in French companies) returned almost 70% over 5 years while the NAV of EWQ rose only 55% over the same period. This does not include the fact that EWQ has a lower dividend yield of 2.33% vs Europe ETF yield of 3.88%.

There are total 17 countries included in VGK which resulted in a greatly diversified portfolio over the same period.

For investors looking for opportunities for to invest in French companies. Investing in France ETF right now would be a contrarian investment where they are looking for a catch up of missed EPS and dividend growth that lagged Europe in the last few years. A better alternative would be a wider Europe ETF such as VGK which would also provide a country diversification for the portfolio.

 

Country Position of Vanguard FTSE Europe ETF

Country Position of Vanguard FTSE Europe ETF

 

Whats more France than Paris?

Whats more French than Paris?