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Top Markets

ETF Investing in Europe
Index Fund Performance
Ireland, Switzerland, Belgium, Britain and ordics
! Market Brief "
Steven Kim
Mint%it Investing
Disclaimer T'is #rief is provided as a resource for information and education&
T'e contents reflect personal views and s'ould not #e construed as
recommendations to an$ investor in particular& Eac' investor 'as to conduct
due diligence and design an agenda tailored to individual circumstances&
( )*+, Mint%it&com
! performance review of t'e top markets in Europe sets t'e stage for investing in a diverse
region t'at includes #udding countries as well as mature economies& For t'is purpose, a
ro#ust and convenient ve'icle for t'e worldl$ investor lies in an exchange traded fund
In sizing up t'e field of index funds, a straig'tforward tack is to #egin wit' a list of t'e 'ig'
fl$ers& T'en ot'er traits suc' as volatilit$ and li/uidit$ can #e #roug't to #ear on t'e
su#0ect in addition to t'e capital gains&
In order to o#tain a #alanced view of performance, t'e window of evaluation s'ould cover
a period in w'ic' t'e market 'as encountered a #oom as well as a #ust& 1n one 'and, a
longis' timespan provides a wealt' of data for a t'oroug' surve$ of performance& 1n t'e
ot'er 'and, t'e turnout in recent $ears is likel$ to #e a #etter guide to t'e prospects going
forward t'an t'e record of t'e remote past&
T'e vale of exc'ange traded funds 'as seen explosive growt' around t'e turn of t'e
millennium& 2iven t'e welter of saplings, an investor w'o insists on a long 'istor$ will
t'ere#$ rule out a raft of candidates& In t'is setting, a track record of t'ree $ears seems
like a fitting compromise in trading off t'e opposing factors of ample data versus plentiful
3it' t'ese points in mind, t'e c'osen window spans t'ree $ears ending in spring )*+,&
From t'is standpoint, t'e front4runners take t'e form of index funds dealing wit' Ireland,
Switzerland, Belgium, Britain and t'e ordic region&
In addition to t'e return on investment over t'e entire stretc', a crucial issue concerns t'e
volatilit$ of eac' ve'icle along t'e wa$& In gauging t'e extent of tur#ulence, a 'and$ aid
lies in a concurrent plot of t'e index funds& For t'is purpose, a suita#le sc'eme involves a
visual displa$ spanning a stretc' of 6 $ears ending in spring )*+,&
Based on t'e capital gains over t'e past t'ree $ears, t'e #est vessels sport t'e ticker
s$m#ols of EI78, E38, E3%, E39 and 2:F& 1ver t'is stretc', t'e index fund for Ireland
-EI78. outpaced t'e c'ief #enc'mark of t'e stock market ; namel$, SP< ; #$ a solid
margin& 1n t'e ot'er 'and, t'e ot'er four ve'icles lagged t'e latter #eacon #$ var$ing
Meanw'ile, over t'e longer span of 'alf a decade, t'e Iris' fund #eat out SP< #$ a modest
amount& =uring t'is period, t'e turnout for Switzerland -E38. was compara#le to t'e
flags'ip #enc'mark of t'e stock market& B$ contrast, t'e remaining t'ree contenders
turned in worse results& In particular, Britain -E39. #roug't up t'e rear amongst t'e top
names in t'e European t'eater&
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Europe, ETF, Exc'ange Traded Funds, Index Fund, Top, 8ist, Market, 7isk, 7eturn,
?olatilit$, Index, Performance, SP<, Ireland, Switzerland, Belgium, Britain, ordics
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To o#tain a rounded view of performance, an investment ve'icle 'as to #e assessed over
a longis' period t'at includes at least one upsurge and one #lowup of t'e market& For t'is
purpose, a suita#le window lies in an interval of t'ree $ears ending in spring )*+,& T'is
timespan covers t'e cras' of t'e stock market in t'e autumn of )*++ as well as t'e
upswell of t'e #ourse after t'e #ust4up&
In order to pick t'e #est ve'icle for a zest$ portfolio, a #asic step is to pinpoint t'e front4
runners in t'e field& In sizing up t'e entrants, t'e ke$ criteria include t'e return on
investment along wit' t'e volatilit$ in price&
!s a rule, t'e foregoing traits are intertwined rat'er t'an independent& For instance, a
ve'icle on a growt' streak is apt to #e more flig't$ t'an a plodding rig t'at grinds along at
a la#ored pace&
In sorting out t'e 0um#led traits, a straig'tforward move is to #egin #$ culling t'e #est
candidates in terms of growt'& T'en t'e ot'er factors suc' as risk and li/uidit$ can #e
#roug't to #ear on t'e appraisal&
Selection Criteria
Since t'e purpose of an investment is to earn a profit, a prospective asset oug't to #e
fruitful as well as 'ard$& T'ese generic traits appl$ to virtual goods as well as tangi#le
wares& !n example of t'e former lies in a currenc$ or index fund, w'ile an instance of t'e
latter involves a commodit$ or real estate&
Since t'e eve of t'e millennium, t'e field of exc'ange traded funds 'as grown at an
explosive rate& !long wit' t'e up'eaval, a raft of entrants 'ave popped up of late& For t'is
reason, t'e newcomers 'ave little to offer #$ wa$ of track records&
1n one 'and, a large trove of data can provide t'e fodder for a compre'ensive review of
t'e market& 1n t'e ot'er 'and, an investor w'o insists on a lengt'$ 'istor$ will t'ere#$
exclude scores of $out'ful funds&
2iven t'is #ackground, t'e mindful pla$er 'as to trade off t'e amount of data against t'e
num#er of candidates& In t'at case, a track record of 5 $ears appears to #e a suita#le
compromise #etween t'e opposing factors&
In picking t'e #est ve'icles for investment, a second criterion involves t'e li/uidit$ of t'e
market& In particular, a sluggis' nic'e marked #$ low turnover is a turnoff for t'e nim#le
investor w'o wants to enter and exit t'e market in a timel$ fas'ion& !s a defensive
measure, a turnover of +*,*** s'ares a da$ seems like an apt t'res'old on t'e low side&
! t'ird factor lies in t'e use of leverage, or lack of suc'& 1n a positive note, a levered
sc'eme can turn in an outsize gain w'en t'e market is on a roll& 1n t'e flip side, t'oug', a
'ig' level of gearing results in a crus'ing loss during t'e downstroke t'at dul$ follows
ever$ upsurge&
!s a practical matter, t'e uptake of leverage opens up a can of worms w'ic' is anat'ema
to t'e genuine investor #ent on #uilding up a nest egg over t'e long 'aul& T'e #oge$s at
'and include o#vious t'reats as well as o#scure snags&
To #egin wit', a stumper of modest size concerns t'e standard notion of risk& T'e use of
gearing gives rise to wild swings to t'e upside as well as downside& T'e t'ras'ing of
prices s'ows up in all time frames, from less t'an a week to more t'an a decade& T'e
manic flailing of a levered asset is a 'eadac'e t'at t'e so#er investor does not need to put
up wit'&
From a larger stance, t'oug', t'e volatilit$ in price is a minor nuisance compared to t'e
grim specter of a w'opping flop& 9nfortunatel$, t'e prospect of utter ruin is ignored #$ t'e
mass of participants in t'e marketplace& T'e cavalier pla$ers w'o #rus' aside t'e let'al
t'reat run t'e gamut from casual amateurs to gung4'o professionals&
To add to t'eir plig't, t'e victims of a #lowup rarel$ manage to recognize t'e true cause of
t'e mis'ap even after t'e fact& Instead, t'e swarm of stunned souls mill a#out in a daze
and c'alk up t'e catastrop'e to a wanton act of providence& In realit$, t'oug', suc' a
punc'out is t'e inevita#le #low#ack from a reckless wager&
In t'is wa$, t'e uptake of leverage is a ras' move t'atAs #ound to end up in tears sooner or
later& In some cases, t'e gearing results in t'e s/uelc' of wealt' in slow motion& ! good
example involves a communal fund in w'ic' t'e operators purc'ase a series of stock
options in a flak$ effort to magnif$ t'e impact of a rise in price in t'e target market&
In practice, t'oug', t'e #ulk of options end t'eir lives wit'out $ielding an$ kind of pa$out to
t'e #u$ers& In t'at case, t'e luckless punters suffer t'e loss of t'e premiums paid out in
order to procure t'e contracts at t'e outset& More generall$, t'e purc'ase of tur#oc'arged
tools is a losing game for millions of gamesters over t'e long 'aul&
T'e grod$ outcome is a universal fate t'at #efalls all manner of pla$ers in t'e financial
ring& ! common example involves t'e purc'ase of call options in order to 0ack up t'e
returns on a stock index& Sadl$, t'e plungers in searc' of /uick profits are 'eaded for t'e
poor'ouse in due course&
=epending on t'e context, t'e operator of a communal fund ma$ opt to take up leverage in
ot'er wa$s& !n example lies in a customized loan from a commercial #ank, or a
standardized contract in t'e futures market& 1n t'e downside, t'oug', t'e levered plo$ is
sure to #ring go#s of grief as time goes #$&
T'e t'reat of a total wipeout is far greater t'an most people reckon& To 'ig'lig't t'e scope
of t'e pro#lem, we turn to t'e financial crisis of )**B along wit' its afters'ock& In t'e
t'roes of t'e catastrop'e, ever$ ma0or #enc'mark of t'e stock market lost more t'an 'alf
t'e value it 'ad reac'ed at its prior peak&
In t'at case, a modicum of gearing #$ a mere factor of ) resulted in t'e o#literation of t'e
entire principal from t'e outset, and t'en some& In certain fields suc' as t'e futures
market, a ramp4up #$ a factor of +* or more is par for t'e course& Meanw'ile ot'er
domains suc' as currenc$ trading allow t'e gam#lers to take up leverage #$ a factor of 6*,
if not +** or 'ig'er still& !s we 'ave seen, 'owever, even a small amount of gearing is t'e
pat' to certain doom in due course&
From a larger stance, a glut of risk is t'e main cause of t'e endless 'ail of #lowups in t'e
financial ring& ! fine example involves t'e swarm of 'edge funds t'at flit around t'e field& In
t'is corner of t'e market, even t'e cele#rated outfits ; namel$, t'e luck$ punters t'at 'ave
managed to s/uirm t'eir wa$ into t'e top tier of 'eav$weig'ts ; are fated to fall flat and die
off in droves& More precisel$, t'e g'astl$ rate of attrition t'ins out t'e ranks of t'e 'ig'
fl$ers at t'e 0aw4dropping rate of one4'alf of t'eir num#er ever$ couple of $ears -%im,
2iven t'e 'azards #ot' #latant and su#tle, taking up leverage is an assured wa$ to lose
out over t'e long range& For t'is reason, we will exclude an$ ve'icle t'at resorts to gearing
in a 'eedless attempt to pump up t'e returns on investment& In ot'er words, t'e proper
candidates for a sound program of investment rel$ on t'e 'onest tack of tracking t'e target
market in a fort'rig't wa$ wit'out #ulking up on t'e steroids of leverage&
3it' t'ese factors in mind, a sensi#le step is to #egin wit' a muster of t'e leading funds in
terms of growt'& T'en t'e ot'er factors suc' as risk, leverage and li/uidit$ can #e #roug't
to #ear on t'e evaluation&
Top 5 ETF List y !rowth
In t'e realm of communal funds, a venera#le resource is found in an information provider
named Morningstar& !t t'e 3e# site maintained #$ t'e market watc'er, one feature is a
#asic list of exc'ange traded funds& T'e data on t'e pools includes a tall$ of performance
over t'e past 5 $ears as well as a measure of popularit$ in terms of t'e volume of trading&
! candidate asset oug't to feature a dollop of li/uidit$ in order to ena#le t'e investor to
#u$ or sell a stake in a timel$ fas'ion& For t'is reason, we will consider onl$ funds t'at
feature a trading volume of +*,*** s'ares or more as a representative figure on a dail$
To #ring up an additional filter, an ETF oug't to #oast a modicum of price 'istor$ in order
to support a meaningful anal$sis of performance& !s we noted #efore, a window of 5 $ears
seems like a suita#le re/uirement& T'e results of t'e screening are presented in t'e ta#le
!s we can see from t'e la$out, t'e top spot was snagged #$ a ve'icle called t'e iS'ares
MSDI Ireland Dapped fund& T'e communal pool trades in t'e 9&S& under t'e ticker s$m#ol
of EIRL& T'e d$namo racked up a capital gain of )*&*+E a $ear on average&
3it'in t'e #and of 'ustlers, t'e worst s'owing was turned in #$ t'e 2lo#al : FTSE ordic
7egion fund -2:F.& T'e lagger managed to eke out a mere C&++E a $ear&
Exchange Traded Fund
iS'ares MSDI Ireland Dapped -EI78. )*&*+
iS'ares MSDI Switzerland Dapped Index -E38. +*&65
iS'ares MSDI Belgium Dapped -E3%. B&FC
iS'ares MSDI 9nited %ingdom -E39. C&65
2lo#al : FTSE ordic 7egion ETF -2:F. C&++
SP=7 SGP 6** -SP<. +5&C
T'e pos$ of index funds dipla$ed a #road range of li/uidit$& !t t'e 'ig' end of t'e scale
was E39, w'ic' #oasted more t'an )&6 million s'ares per da$& !t t'e low end was 2:F,
w'ic' featured a little under +,,*** s'ares&
From a larger stance, an icon of t'e stock market lies in an index of 6** 'eav$weig'ts
compiled #$ a financial advisor$ named Standard G PoorAs Dorporation, an outfit w'ic'
also goes #$ t'e nickname of S&P& T'e #enc'mark of t'e #ig fis' 'appens to #e t'e most
popular prox$ of t'e stock market amongst t'e professionals in t'e field, #e t'e$ active
traders or passive researc'ers& T'e SGP 6** index 'as spawned its own tracking fund,
w'ic' trades on t'e 9&S& #ourse under t'e call sign of SPY&
!ccording to a recent tall$, t'e flags'ip fund #agged an average gain of +5&C*E per
annum over t'e course of 5 $ears ending in spring )*+,& In terms of transaction volume,
SP< is prone to rack up some ++F million s'ares a da$ -Morningstar, )*+,.&
!s we 'ave 0ust seen, a numeric tall$ provides a direct and fort'rig't wa$ to summarize
t'e performance of t'e leading candidates& 1n t'e ot'er 'and, a grap'ic displa$ of t'e
price action can provide t'e deft investor wit' furt'er cues on t'e texture of t'e markets&
Chart %ction
T'e earnest pla$er 'as to consider t'e volatilit$ of t'e ve'icles t'roug'out t'e window of
evaluation in tandem wit' t'e net pa$off over t'e entire stretc'& For t'is purpose, a grap'ic
displa$ of t'e price 'istor$ offers an intuitive rundown of t'e index funds under
! compact wa$ to compare t'e index funds is to plot t'eir #e'avior on a single c'art& T'e
diagram #elow, adapted from <a'oo Finance -finance&$a'oo&com., spans a period of 6
$ears ending in spring )*+,&
To serve as a #aseline, t'e #lue curve sketc'es out t'e relative performance of t'e SGP
6** index fund over t'e entire stretc'& Moreover, t'e section of t'e diagram s'aded in lig't
#lue portra$s t'e area #elow t'e #lue line&
In contrast, t'e green arc s'ows t'e course of EI78 since its inception in Ma$ )*+*& !s an
aid for comparative anal$sis, t'e plot 'as #een ad0usted so t'at t'e starting point for t'e
Iris' fund upon its de#ut lies on t'e same spot as t'e curve for SP< on t'at date&
T'e stor$ is similar for t'e 2:F fund, w'ic' was launc'ed in !ugust )**F& T'at is, t'e tan
s/uiggle for t'e ordic 7egion starts out at t'e same spot as SP< at t'at milestone&
B$ contrast, t'e ot'er ve'icles in t'e lineup displa$ longer 'istories& More precisel$, t'e
SP< fund came to life in +FF5 w'ile t'e remaining t'ree pools s'owed up t'ree $ears
afterward& Since t'ese rollouts predate t'e starting point for t'e c'art, eac' of t'e
corresponding lines #egins at t'e origin sited along t'e left edge of t'e diagram&
From t'e left side of t'e displa$, we see t'at all t'e contenders clam#ered upward for a
$ear or so, t'en fell on 'ard times in spring )*+*& T'e comedown was followed #$ a s'ort
recover$, w'ic' in turn gave wa$ to a worse crackupH namel$, t'e cras' of t'e stock
market in t'e autumn of )*++& !fter t'at #lowup, t'e index funds tramped 'ig'er in spite of
t'e inevita#le c'ain of minor set#acks along t'e wa$&
3e see t'at t'e Iris' fund turned in a dismal performance during t'e first $ear and a 'alf of
its de#ut& 1n t'e upside, t'oug', EI78 made up for lost time and zoomed 'ig'er after t'e
cras' of )*++& 1f particular note, t'e Deltic tiger outpaced its rivals #$ a 'eft$ margin over
t'e last couple of $ears&
B$ contrast, t'e turnout for t'e ot'er four contenders 'as #een more su#dued& 1n t'e
upside, t'e European funds outran t'e !merican #enc'mark for a $ear after t'e smas'up
of )*+*& But t'e$ fell 'arder during t'e cras' of t'e #ourse t'e following $ear&
From t'e purple and tan curves, we can see t'at Belgium and t'e ordic markets 'ad a
roug' time getting #ack on track after t'e #lowup of )*++& In t'e $ears to follow, t'e$
outpaced SP< #$ a small amount #ut were una#le to close t'e gap t'at appeared during
t'e second 'alf of t'at fateful $ear&
In comparison, t'e orange curve s'ows t'at Britain did not fare muc' worse t'an t'e 9&S&
during t'e cras' of )*++& 9nfortunatel$, E39 trailed #e'ind t'e !merican touc'stone #$ a
siza#le margin since t'e end of t'at $ear&
Finall$, t'e red curve s'ows t'at Switzerland was a #it more volatile t'an t'e 9&S& =espite
t'e tur#ulence along t'e wa$, 'owever, t'e overall pa$off for E38 over t'e entire stretc'
'as #een nearl$ identical to t'e !merican #enc'mark&
&rapup of 'erformance
In preparing a list of t'e leading funds, an o#vious point of departure is t'e rate of return
over t'e past several $ears& 1n t'e ot'er 'and, a lot of exc'ange traded funds are relative
newcomers to t'e financial forum& T'e $ounglings of t'is sort do not 'ave muc' of a track
record& For t'is reason, an investor w'o insists on a lengt'$ 'istor$ will end up wit' a
scant$ pool of candidates&
2iven t'is #ackdrop, t'e worldl$ investor 'as to #alance t'e lengt' of t'e price record
against t'e size of t'e candidate pool& !t t'is earl$ stage in t'e evolution of exc'ange
traded funds, a reasona#le compromise #etween t'e pair of opposing factors is a compact
timespan t'at 'appens to straddle a severe flop as well as a 'eft$ surge of t'e market&
For our purpose 'ere, t'e window of evaluation for a numeric tall$ spanned a period of
t'ree $ears ending in spring )*+,& 1ver t'is stretc', t'e top index funds for Europe dealt
wit' t'e markets of Ireland, Switzerland, Belgium, Britain, and t'e ordic region&
=uring t'is period, t'e communal pool for Ireland -EI78. outpaced t'e flags'ip #enc'mark
of t'e stock market ; namel$, SP< ; #$ a solid margin& 1n t'e ot'er 'and, t'e ot'er four
contenders lagged t'e standard #earer #$ var$ing degrees&
Meanw'ile, over t'e course of 'alf a decade, t'e Iris' ve'icle #ested SP< wit' a modest
lead& =uring t'e same period, Switzerland -E38. snagged a compara#le pa$off as t'e
!merican icon&
1n t'e downside, t'oug', t'e remaining t'ree contenders turned in a poor s'owing& In
particular, Britain -E39. #roug't up t'e rear amongst t'e front4runners wit'in t'e
European t'eater&
Tips and Ca(eats
! vital issue t'at lies #e$ond t'e scope of t'is article concerns t'e lack of a panacea in t'e
marketplace& 2iven t'e a#sence of a universal solution, ever$ investor 'as to size up t'e
prospective c'oices in lig't of individual circumstances&
For t'is purpose, a prime example of a personal trait involves t'e level of tolerance for risk&
!not'er sample concerns t'e wa$ in w'ic' a candidate asset complements t'e ot'er
widgets wit'in a larger portfolio&
2iven t'e diversit$ of needs and wants, t'e #est c'oice of ETF for one person could well
#e a lous$ pick for someone else& For instance, a particular investor mig't decide t'at a
'ig' rate of growt' is not wort' t'e 'eart#urn stoked #$ t'e violent t'ras' of prices&
Turning to a different topic, t'e prudent pla$er is o#liged to consult multiple sources of
information in order to o#tain a credi#le and rounded view of t'e prospects at 'and& ! case
in point is a confirmation of t'e past statistics as well as t'e current status of an ETF&
!not'er sample involves t'e long4range outlook for t'e target market tracked #$ an index
T'e field of exc'ange traded funds is still in its infanc$& =ue to t'e 0e0une state of affairs,
t'e information availa#le on t'e 3e# ; including t'e data provided #$ renowned and
popular portals suc' as <a'oo Finance ; is often #eset #$ a raft of flaws& ! case in point is
a #unc' of performance figures w'ic' turns out to #e incorrect, inconsistent andIor
!mid t'e din and t'e smog of t'e marketplace, t'e sage investor 'as to tread carefull$
#efore making a crucial decision of an$ sort& T'e 'azards of fault$ information, along wit'
a /uiver of remedial measures, are discussed at greater lengt' in an article titled JDrudd$
Information on Exc'ange Traded FundsK -Mint%it, )*+,.& T'e primer provides a solid
foundation for sorting out t'e top c'oice of exc'ange traded funds in order to fix up a
trenc'ant program of investment&
%im, S& J3ildcats of FinanceK& 'ttpLIIwww&mintkit&comI3ildcats4of4Finance ; tapped
Mint%it Dore& JDrudd$ Information on Exc'ange Traded Funds&K
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Morningstar& JETF 7eturnsK& 'ttpLIInews&morningstar&comIetfI8istsIETF7eturns&'tml ;
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