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3 Developed Market ETFs Crushing American Stocks

Eric Dutram

Stock performance outlooks have certainly been called into question as of late, as suspicions over earnings and the fiscal cliff have minimized investors’ gains in the fourth quarter of 2012. Concerns remain looking ahead, as margin contraction could hamper earnings, while a debt ceiling debt in early 2013 could make the Fiscal Cliff look like a cakewalk.

Even with these doubts hanging over the market, the U.S. economy has been something of a safe haven this year as many worries have cropped up over the global economic picture. This has made the U.S. the best of the worst in many investors’ eyes, causing some to zero in on the American market for exposure (see How Do You Pick a Country ETF for 2013?).

While the American benchmark, the S&P 500 has certainly had a decent year, some investors might be surprised to note that several other nations have quietly beaten this figure on a YTD basis quite easily. These few markets have flown under the radar as most assume that developed markets outside the U.S. have been exceptionally weak this year leading many to shun these securities.

This has proven to be a poor idea for most, as these developed markets are by no means overheating—thanks to the aforementioned low expectations—and they could even be less volatile plays in the months ahead. That is because many of these choices have little in terms of political and policy worries, suggesting that they could be in for a less bumpy ride as we push into 2013 (read Three Country ETFs with Shockingly High Yields).

For these reasons, a look to some of these top performers could be an excellent idea for U.S. investors seeking developed market exposure beyond the Cliff-impacted American stocks, which could potentially continue to outperform as we head into the New Year:

iShares MSCI Germany Index Fund (EWG)

This ETF tracks a basket of German stocks, holding roughly 50 in its portfolio while charging 51 basis points a year in fees. Yield is pretty good at about 2.5%, while volume—at roughly 4.6 million shares a day—is exceptional, suggesting tight bid ask spreads.

The product is tilted towards Siemens, BASF, and Bayer, while it also has a large cap focus as well. From a sector look, consumer discretionary, financials, and basic materials take the top three spots, while telecom, staples, and utilities are among the lightest in the product (read Do Country ETFs Really Provide Diversification?).

In terms of performance, EWG has been quite volatile in 2012 thanks to the ongoing European strife. Still, the product has added over 20.8% so far in 2012, making it a top performer in Europe and a decent candidate for outperformance in 2013.

iShares MSCI Singapore Index Fund (EWS)

This product has been riding high on the back of strong Southeast Asia growth levels, holding about 30 stocks in its basket in total. The ETF is also a high yielder, putting out income of about 3.5% per year on great volume and moderate expenses.

Still, the product is focused on a few choice sectors, and almost entirely on large cap stocks. Financials make up about 33% of the assets, followed by industrials at 24%, real estate at 16%, and telecoms at 12% (see Can Anything Stop These Southeast Asia ETFs?).

The ETF began 2012 on a tear, and after a big lull in the early summer, never looked back. The product is now up over 24% this year, and thanks to its role as a safe haven in the strong Southeast Asia region, could be an interesting pick in 2013 as well.

iShares MSCI New Zealand Investable Market Index ETF (ENZL)

New Zealand and ENZL are often overlooked by their peers in Australia, but this is to investors’ detriment as the product is a high yielder (nearly 6%), and a well diversified choice. Volume isn’t anything earth shattering, but it is in line from a cost perspective and one of the only options out there to track Kiwi stocks (read The Five Minute Guide to New Zealand ETF Investing).

The ETF’s basket is a little top heavy though, as two stocks account for roughly 33% of assets, and only 20 other stocks are even in the fund. The product is also concentrated in large caps, but is actually well diversified from a sector look as five segments account for at least 10% of assets including materials, telecoms, industrials, consumer discretionary, and real estate, giving it wide exposure across the New Zealand market.

In terms of performance, ENZL has crushed not only American markets, but their counterparts in Australia as well (represented by EWA). In total, ENZL has added just under 24.5%, not too shabby especially when adding on the nearly 6% dividend payout.

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Follow @Eric Dutram on Twitter

Author is long EWG and ENZL

Read the analyst report on EWG

Read the analyst report on EWS

Read the analyst report on ENZL

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