Pure French Connection To US ETFs Is Thin

April 21, 2017

Most ETF investors haven’t given much thought to how France might impact their portfolios—until this year, that is.

On Sunday, the country will go to the polls for round one of an election to pick two of four leading candidates for a runoff the following weekend, and the stakes couldn’t be higher.

Should France Stay In The EU, Or Go?
The four represent a wide political spectrum, from ultra-conservative and anti-immigration candidate Marine Le Pen, who is one point behind in the most recent polls, to current front-runner Emmanuel Macron, who’s the middle-of-the-road candidate and newcomer.

Le Pen wants to extract the country from the European Union, while Macron would maintain the status quo.

Behind the two are Francois Fillon, the only candidate from the scandal-plagued political establishment, who served as prime minister to President Nicolas Sarkozy. He would also maintain EU status quo.

The real wild card is the communist-backed Jean-Luc Melenchon, who has proposed a 100% tax on income over $400,000, and like Le Pen, opposes globalization and the EU.

Volatility In The Making
While Le Pen and Macron are leading, it’s not by much over the other two. With such diverse views of where France should go—out of the EU or stay the course—a new potential macro flashpoint could be in the making.

The unpredictability has French and European investors on pins and needles, and investors around the world bracing for volatility if the winner pledges to lead the country out of the EU, following the United Kingdom’s Brexit vote.

Of course, some investors see potential opportunity if extreme market moves follow the eventual winner.

Slim French Pickings
But for U.S. ETF investors, the selection is slim. There is only one U.S.-listed France ETF, the iShares MSCI France ETF (EWQ), the $404 million fund launched more than 20 years ago. EWQ has performed on par with the largest European fund, gaining 7.34% so far this year, to the $11.4 billion Vanguard FTSE Europe ETF’s (VGK) 8.09% increase. Both funds have outperformed the SPDR S&P 500 ETF Trust (SPY), which has returned 5.83%.

 

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