Why Are Financial Pros Hot on German Stocks?

While most investors were actively watching U.S. stocks this week, financial pros were looking elsewhere.

The Global X DAX German ETF (DAX) was the fifth most searched ETF by financial pros in the past month…which has NEVER happened.

Top searches are typically dominated by the most popular ETFs like the SPY or the QQQ.

So, what was the DAX doing up there?

Key Facts About DAX

• Net assets: $73 million
• 12-month trailing yield: 2.39%
• Inception: October 22, 2014
• Expense ratio: 0.20%
• Number of holdings: 42

While there are a handful of ETFs that own German equities, the DAX is the only one that attempts to track the German DAX Index, Germany’s version of the S&P 500.

The DAX Index is a market-cap-weighted index comprised of 40 of the largest and most liquid stocks that trade on the Frankfurt Stock Exchange.

Many of the companies listed are also available to trade in the U.S. through American Depository Receipts/Stocks.

Source: Global X

The German economy is well-known for its manufacturing and industrial base, giving it a heavy weighting in the industrial sector.

However, the Technology sector is heavily represented at the industry level.

Source: Global X

Notably, the DAX isn’t heavily traded at less than 10,000 shares per day on average. Plus, it only has $73 million in assets under management, a relatively small amount for an ETF.

However, the ETF’s ratio is 0.20%, one of the lowest we’ve seen for an international ETF focused on a specific country.

Performance

The German economy hasn’t done as well as the U.S., giving it returns that aren’t spectacular.

In the last three years, the index has averaged around 2% annually and 6% over the last five years.

Source: Global X

Competition

We found it a bit odd that financial pros were so interested in this little-known German ETF.

So, we compared it to other international ETFs that were popular among the money managers.

• Columbia India Consumer ETF (INCO): Focuses on the consumer sector in India and is market cap-weighted, providing exposure to the growing Indian consumer market.
• iShares MSCI EAFE ETF (EFA): Targets developed markets outside of North America, including Europe, Australasia, and the Far East, and is market cap weighted.
• WisdomTree India Earnings Fund (EPI): Tracks Indian companies weighted by their earnings, using a fundamentally weighted approach.
• iShares China Large-Cap ETF (FXI): Holds the largest companies in China, primarily state-owned enterprises, and is market cap weighted.

One obvious takeaway here is that India’s emerging economy has done exceptionally well in the last several years, though still lags behind U.S. markets.

Our Opinion 8/10 

It’s not entirely clear why financial pros were so interested in this ETF.

Germany’s economy isn’t faring exceptionally well.

But even if it was, this ETF is very illiquid, often leading to wide spreads. And while there are quarterly options available on it, the volume is practically non-existent.

Still, this ETF comes with a low expense ratio and largely delivers what it promises.