Equity: Germany - Small Cap
The two Germany Small Cap ETFs—GERJ and EWGS—are remarkably similar. Both are market-cap-weighted small-cap funds that are expensive, trade poorly, and have low asset levels.
“Both GERJ and EWGS cover fairly vanilla sets of German small-caps.” That said, EWGS has the greater assets and liquidity of the two—which is also borne out in its tighter average spreads.
GERJ's and EWGS' portfolios are slightly different from each other, though both cover fairly vanilla sets of German small-caps. The difference is that GERJ defines a German company as one that either earns at least half of its revenues in Germany or is domiciled there with a primary listing on a German exchange. GERJ allocates 11% of assets to companies that may not, officially, be considered German. In contrast, EWGS takes a narrower definition of German companies as it includes only those incorporated in or listed on German exchanges. GERJ and EWGS also make different selection universe cutoffs, so GERJ excludes some of EWGS' biggest holdings, like Bilfinger Berger. Still, they have very similar portfolios overall. The big deciding factor in this segment is costs, where EWGS has a modest advantage. (Insight updated 11/21/17)
All Funds (1)
EWGS $58.25 M 58245260 Marketlike basket
ETF.com Grade as 11/16/17
Equity: Germany - Small Cap
ETF.com Efficiency Insight
The two ETFs in this segment charge similarly high expense ratios—GERJ charges 0.55% and EWGS charges 0.59%—which puts them on relatively equal footing in Efficiency. Both track
“Both funds have avoided capital gains payouts” reasonably well—EWGS is a bit looser on average, but more consistent. GERJ loses points for its small asset base—which significantly raises the risk of fund closure—but EWGS is only marginally better on this front.
Both funds have maintained tax efficiency by avoiding forced capital gains payouts. (Insight updated 11/21/17)
ETF.com Tradability Insight
Tradability is a real problem for both GERJ and EWGS. GERJ doesn't trade at all on many days. EWGS does better but still sees less than $300K in volume most days.
“Tradability is a real problem” important distinction between GERJ and EWGS is their average bid/ask spreads: GERJ tends to trade at spreads more than twice as wide as EWGS, but even EWGS is unattractive at 0.35%.
Underlying liquidity is relatively similar in each fund as they hold similar and often overlapping securities. However, EWGS sees better block liquidity as market makers will have an easier time unwinding their positions in the secondary market. (Insight updated 11/21/17)
ETF.com Fit Insight
EWGS and GERJ each provide broad, comprehensive exposure to the German small-cap market. They differ mainly in their definition of a German company and their cutoff line for small-caps.
“GERJ expands its selection universe to include offshore companies.” GERJ expands its selection universe to include "offshore" companies that generate at least half of their revenues from Germany. About 11% of GERJ's assets are allocated to companies in this "offshore" category. At the same time, GERJ excludes some of the biggest small-caps that EWGS includes: Bilfinger Berger and MTU Aero Engines are both missing from GERJ's portfolio.
As a result, the two portfolios have slightly different tilts. GERJ tilts smaller than EWGS: It holds fewer midcaps and more small- and micro-caps. GERJ underweights basic materials and overweights financials relative to EWGS. That said, the two portfolios are ultimately very similar. (Insight updated 11/21/17)