Berko: Investing in Germany with ETFs
Friday, March 21, 2014 7:00 AM
Dear Mr. Berko:
Because Germany has the strongest economy in Europe, I figured it would be a good idea to invest in some German stocks in anticipation of an economic recovery in Europe. I was going to invest $20,000 or $25,000 in German companies listed on the New York Stock Exchange, such as SAP, Fresenius, Deutsche Bank, Deutsche Telekom and Daimler. But my broker suggested db X-trackers MSCI Germany Hedged Equity Fund. I can’t find this exchange-traded fund in Value Line, Standard & Poor’s or Moody’s Investors Service. The ticker symbol is DBGR. What do you think of this and other ETFs? Please tell me what MSCI means and whether this is a good stock for a conservative investor. I might invest in it, but I’d rather own individual stocks than a fund.
H.R., Kankakee, Ill.
MSCI, one of the most common symbols in the ETF landscape, is an abbreviation for Morgan Stanley Capital International Inc. (MSCI-$46.18). Morgan Stanley (MS-$31.36), the huge financial holding company, is the majority shareholder of MSCI. And MSCI is the vehicle that gave birth to a disparate and confusing agglomeration of 2,701 ETFs (most of which should be aborted) sold to thousands of shareholders. Last year, MSCI, with the help of its 3,100 employees, drained $1.03 billion in management revenues from its warren of ETFs. MSCI earns revenues by designing and marketing a superfluity of constantly new ETF products for credulous investors. The funds are taken public by Morgan Stanley and its various selling groups. MSCI then earns hundreds of millions in sweet fees managing the portfolios of those 2,701 ETF investments for thousands of shareholders, plus there are additional fees for facilitating proxy and voting schemes for these and similar ETFs. The Street believes that MSCI will increase its 2014 revenues by 6 percent, to $1.1 billion, and increase its per-share income by 7 percent, to $2.39. MSCI is one of Morgan Stanley’s 24-karat golden eggs.
I decided to page through the codex of Morgan’s 2,701 funds and was so bewildered by the dizzying smorgasbord of ETF investment choices that my eyes began to cross. Morgan has 107 different ETFs for Japan, 203 ETFs for Deutsche Bank exchange trackers, 197 U.S. ETFs and 248 emerging-market ETFs. MSCI also has special ETFs for EMUs, the euro overnight index average/Ucits, EMSDs, GERD, the All Country World Index and BANGLs and a garbage pit of other ETFs for stupids.
However, MSCI isn’t alone in this golden egg farce. Vanguard runs 1,908 ETFs; BlackRock manages 1,285; Fidelity covets 2,396 ETFs; Invesco embraces 1,309; and Pimco sings the praises of its 1,385 ETFs. The majority of these ETFs are trading vehicles (quick in and out) rather than growth and income investments for long-term portfolios. Most of the approximately 12,000 ETFs vying for your attention like shiny cars in dealers’ lots are redundant and fatuous. I’m guessing that among this huge universe of ETFs, somewhere between 1,200 and 1,700 have redeeming value. And the db X-trackers MSCI Germany Hedged Equity Fund (DBGR-$24.77), recommended by your broker, may be one of them.
There’s a cornucopia of ETFs, closed-end funds, open-end funds, load funds and no-load funds that specialize in Germany. However, it appears your broker has (wittingly) given you good advice. And frankly, money managers who are good enough to effectively manage ETF portfolios are a very rare breed. DBGR (a June 2011 issue) owns a portfolio of 55 German equities, and management uses simple hedging techniques that reduce your exposure to fluctuations between the U.S. dollar and the euro. DBGR’s small $21 million portfolio owns iconic companies such as Bayer, Siemens, BASF, Daimler, Allianz, SAP, Deutsche Bank, Deutsche Telekom, Volkswagen Group and Munich Re Group. DBGR pays an 85-cent dividend yielding 3.4 percent. The European economy is on the mend. This broker knows what he’s doing, so take his advice.