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What's in Store for French ETFs?

French inflation remained steady in July owing to a rise in services and energy prices, partially offset by a decline in food prices. Consumer prices grew 0.7% year over year in July, the same as in June.


Moreover, euro zone’s second-largest economy grew 0.5% in the second quarter of 2017. In July, the economy grew 1.8% year over year compared with 1.1% in the previous month.


Consumer confidence in the economy declined to 104 in July from 108 in the previous month, as French people are not that optimistic about their future finances. However, French business confidence rose to a six-year high in July 2017, as it reported a reading of 109, the highest since June 2011.


Although it has most recently been noted that approval ratings for the newly elected French President Emmanuel Macron have been falling, as he plans to cut down spending and implement labor reforms, his rise as an independent candidate to become the youngest ever French President is admirable and reflective of potential.


Unemployment is at a record low, as number of people seeking employment in June fell to 3,483,200, down 0.3% on a monthly basis and 1% on an annual basis. Macron targets to acknowledge the economy’s budget deficit and reduce corporate taxes (read: France to Introduce Tax Cuts: ETFs to Buy).     


Macron aims to put into effect the first part of his labor reform by mid-September 2017. Although still too early into his presidency, if Macron succeeds in doing what his predecessors couldn’t, that is changing the labor code of France, which has been viewed as too restrictive for decades, it will revolutionize the country’s operations and its stand in the global market space.


Let us now discuss the most popular ETF focused on providing exposure to the French economy (see all European Equity ETFs here).


iShares MSCI France ETF EWQ


This ETF is a pure play on French equities and provides exposure to large and mid-sized companies in France.


It has AUM of $577.08 million and charges 48 basis points in fees per year. From a sector look, Industrials, Consumer Discretionary and Financials are the top three allocations of the fund, with 19.73%, 17.76% and 15.84% exposure, respectively (as of July 27, 2017). Total SA, Sanofi SA and BNP Paribas SA are the top three holdings of the fund, with 7.89%, 7.53% and 5.83% exposure, respectively (as of July 27, 2017). It has returned 19.58% year to date and 24.47% in the last one year (as of July 28, 2017). It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.


The Eurozone seems to be in good shape as confidence levels are hitting new decade highs, levels which were last witnessed before the financial crisis of 2007. The sentiment index increased to 111.2 in July compared with 111.1 in June. This surge in sentiment was driven primarily by positive economic data in Germany and Netherlands. Let us now compare the performance of the France focused fund to a broad Europe based ETF, EZU (read: ETF Winners & Losers on IMF Growth Forecast).


iShares MSCI EMU ETF EZU


This ETF is a play on developed European economies using the common currency with a focus on large and mid-cap equities.


It has AUM of $13.64 billion and charges 48 basis points in fees per year. The fund has a 32.13% allocation to France, 28.65% to Germany and 11.28% to Netherlands (as of July 27, 2017). From a sector look, Financials, Industrials and Consumer Discretionary are the top three allocations of the fund, with 21.20%, 15.06% and 13.18% exposure, respectively (as of July 27, 2017). Total SA, Sanofi SA and Bayer AG are the top three holdings of the fund, with 2.55%, 2.42% and 2.27% exposure, respectively (as of July 27, 2017). It has returned 20.32% year to date and 24.42% in the last one year (as of July 28, 2017). It has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: Euro at 2-Year High: ETF Winners & Losers).


Below is a chart comparing the performance of the two funds.


 
Source: Yahoo Finance


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ISHARS-FRANCE (EWQ): ETF Research Reports
 
ISHARS-EMU IDX (EZU): ETF Research Reports
 
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