Van Eck Global, the New York-based sponsor known for its natural resources- and country-specific ETFs, launched a small-cap Germany fund today, a first for U.S. investors and an attempt by the firm to compete with other Germany-focused ETF heavyweights.
The new fund, the Van Eck Market Vectors Germany Small-Cap ETF (NYSEArca: GERJ) tracks the company’s own Van Eck Market Vectors Germany Small-Cap Index, and carries an annual expense ratio of 0.55 percent, 2 basis points more than the biggest Germany ETF, the $2.93 billion iShares MSCI Germany Index Fund (NYSEArca: EWG).
Although Van Eck filed for its Germany small-cap fund in January, the firm says that timing played very little part in today's launch. Nevertheless, the rapid three-month filing-to-launch time frame for GERJ speaks volumes about Van Eck's ambition for its Germany small-cap product. Fund sponsors often take months—and sometimes years—between filing for and launching a new product.
Van Eck believes that the fundamentals of the German economy, the largest in the eurozone, support the new ETF.
"Germany has a resilient economy," said Allison Lovett, Van Eck's vice president of marketing. "Germany's exports have grown by 8 percent since 2003 to $1.3 trillion in 2010."
Apart from its giant export sector and world-renowned manufacturing, Germany’s success is also linked to its inflation-wary monetary policy, a vestige in part of the hyperinflation that ravaged its economy in the 1920s. Even in the age of the eurozone, Germany casts a long shadow, as its inflation-fighting ethos is embedded into much of what the European Central Bank does.
The discipline comes out in the wash to the extent that securities like EWG, the iShares Germany fund, have performed well—even as a sovereign debt crisis has wracked the eurozone, particularly its smaller members, such as Greece. The ETF is up almost 19 percent in the past year.
Growth In Local Demand
Van Eck’s Lovett said she believes that local German growth will follow the lead of the country’s strong export sector.
"Domestic demand will become a more important catalyst," said Lovett, a trend that would augur well for small-cap German firms that derive fewer revenues from exports.
GERJ's benchmark includes local companies in Germany as well as offshore firms. "You're targeting investment in domestic growth," said Lovett, who pointed out the desirability of owning small-to-midcap privately owned companies within Germany, or "the mittelstand."
"[GERJ] is the closest that you're going to get to the mittelstand," added Lovett.