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October 09, 2013 at 17:17 PM EDT
Why Investors Should Consider Switzerland ETFs
NYSEARCA:VGK, NYSEARCA:EWL, NYSEARCA:FSZ Related posts: Two Switzerland ETFs To Watch On The China FTA Deal Changes In Switzerland’s Economy Has Created Opportunity Why Investors Should Consider Yen-Hedged Japan ETFs? Should Investors Avoid Russia ETFs? Should Investors Avoid India ETFs?

switzerlandEurope has rebounded quite well and is now performing remarkably on rising consumer confidence, declining unemployment rates, rising exports, firmer currency, less concerns on debt levels as well as improving manufacturing and service sectors.

This growth is broad based, led by the U.K. and Euro zone, which finally emerged from its six-quarter long recession. Switzerland – one of the most stable economies in Europe – is also fueling the continent’s growth story.

The economy grew more-than-expected in the second quarter buoyed by robust private consumption and increased spending on machinery and equipment (read: Play Europe with these Small Cap ETFs).

Though growth for the second quarter of 0.5% is higher than the market expectation of 0.3%, it is down from 0.6% reported in the first quarter. The construction sector was a slight drag on the economy in the quarter with a 0.3% drop. Further, strength in the Swiss currency (franc) weighed on exports.

Swiss Economic Outlook

The Swiss economy is relatively sound, especially when compared to its neighbors in the region. This is because the country has manageable public debt, enough trade surplus and AAA credit rating.

The Swiss economy is expected to gain momentum at a faster pace in the coming months. The government raised the country’s GDP growth outlook from 1.4% to 1.8% for this year and from 2.1% to 2.3% for the next.

The improved outlook comes on robust demand from key Swiss sales markets and improving Euro zone business conditions. Further, there have been some signs of upswing in exports as a recovery in tourism has already started (read: 3 Top Ranked International ETFs Still Worth Buying).

The unemployment rate of the nation stands at 3.2% as of August, much lower than the neighboring economies, suggesting that Switzerland has been able to do better than most.

Additionally, the country emerged from the state of mild deflation over the past two years in August, with zero inflation, even though deflation was not a problem for the country. The Swiss National Bank (SNB) conducts monetary policy with a focus on maintaining price stability (CPI inflation rate of less than 2 percent).

However, one issue that is linked with this nation is that its currency (Swiss franc) is pegged to the Euro. The SNB intervenes in the foreign exchange markets to maintain the peg against the Euro at a floor of 1.20. The pegging led to the currency not falling beyond 1.20 thereby making it less appreciable for American investors especially in an environment where the Euro continues to be weak.

Switzerland ETFs to Consider

Given strong fundamentals, Switzerland has been able to hold up quite well than most European countries so far this year. Investors willing to tap the opportunity in this growing economy could choose from the following two ETFs, any of which could be a decent pick.

Both products are clearly outpacing the developed Europe market funds by wide margins in the year-to-date time frame.

iShares MSCI Switzerland Index Fund (NYSEARCA:EWL)

This fund provides exposure primarily to large cap Swiss stocks by tracking the MSCI Switzerland 25/50 Index and holds 40 securities in its basket. The product is heavily concentrated across both sectors and securities.

More than two-thirds of the portfolio is allocated to the top three sectors – healthcare, financials and consumer staples. In terms of holdings, the top three firms collectively make up for more than 44%, suggesting that the top firms dominate the returns of the fund.

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Related posts:

  1. Two Switzerland ETFs To Watch On The China FTA Deal
  2. Changes In Switzerland’s Economy Has Created Opportunity
  3. Why Investors Should Consider Yen-Hedged Japan ETFs?
  4. Should Investors Avoid Russia ETFs?
  5. Should Investors Avoid India ETFs?

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