European policymakers meet in Brussels on Thursday and Friday
in what is being hailed as the latest effort to hammer out
substantive fiscal reform to restore economic health to the
Financial markets have been down this road before: Traders get
their hopes up that the latest EU summit will be the one that
finally solves the region's debt crisis only to be let down when
nothing definitive is solved.
Arguably, expectations are already low as some marquee
European ETFs are being hammered today. The reasons are obvious.
Moody's Investors Service is expected to downgraded Spanish banks
as soon as today,
according to Reuters
Spain, the Eurozone's fourth-largest economy, has formally
requested assistance for its ailing banks. Yields on Italian and
Spanish two-year sovereigns are blowing out today, the latest
sign that investors' appetite for debt issued by the two PIIGS
members remains tepid at best.
With all that headline risk at play, consider the following
ETFs in advance of the EU summit.
PowerShares DB Italian Treasury Bond Futures ETN (NYSE:
ITLY tracks the DB USD BTP Futures index, which features
securities with an original term of no longer than 16 years and
remaining term to maturity of not less than 8 years and 6 months.
Surprisingly, ITLY has only lost 3.1 percent in the past 90 days.
That is an almost bullish performance considering that many
traders view Italy as the next European shoe to drop after
On the other hand, it must be acknowledged that Italy is the
only member of the PIIGS to not receive some form of bailout
assistance--at least not yet. It is a big "if," but if
policymakers are able to hammer out a plan for buying Italian and
Spanish debt at this week's summit, ITLY would benefit.
WisdomTree Europe SmallCap Dividend Fund (NYSE:
The WisdomTree Europe SmallCap Dividend Fund is not the first ETF
traders are thinking about heading into the summit, but the
fund's country composition makes a valid play for the week.
Eurozone countries account for nearly 59 percent of DFE's weight
with Italy being the fund's second-largest country allocation at
Specific to the PIIGS, only Greece is not represented in DFE.
The other four combine for about a quarter of DFE's total weight.
DFE is technically vulnerable. If support at $31 gives out,
selling pressure would likely accelerate.
iShares MSCI Spain Index Fund (NYSE:
Ahead of the summit, the iShares MSCI Spain Index Fund is being
battered to the tune of five percent on Monday. EWP is an example
of a technically vulnerable ETF. Yes, EWP is flirting with $23,
but support at $20 needs to hold. With a looming downgrade for
Spanish banks, EWP is vulnerable to near-term downside because
financials account for almost 41 percent of the fund's weight. On
its own, troubled Banco Santander (NYSE:
) is nearly 21 percent of EWP's weight.
Due to severe headline risk and elevated bond yields, EWP is
back at a place where the only way to play the ETF is short it or
stay on the sidelines.
ProShares UltraShort MSCI Europe (NYSE:
The ProShares UltraShort MSCI Europe is double-leveraged inverse
answer to the Vanguard MSCI Europe ETF (NYSE:
). Those wondering about EPV's utility ahead of and after the
summit only need to examine what countries comprise the MSCI
According to MSCI, those countries are as follows: Austria,
Belgium, Denmark, Finland, France, Germany, Greece, Ireland,
Italy, the Netherlands, Norway, Portugal, Spain, Sweden,
Switzerland, and the United Kingdom.
While the U.K. and Switzerland figure prominently in the
index, the mere fact that Europe is in the index name is cause
for alarm. That tarnishes VGK and makes EPV worth embracing.
iShares MSCI Europe Financials Sector Index Fund (NASDAQ:
With $21.7 million in assets under management and average daily
volume of less than 38,000 shares, the iShares MSCI Europe
Financials Sector Index Fund could be deemed an under-the-radar
play in a more sanguine market environment. Unfortunately,
sanguine is one of the least accurate ways of describing the
current state of affairs in the Eurozone.
An ETF devoted exclusively to European bank stocks is apt to
be punished these days and that is what has happened with EUFN.
The fund is off 19.2 percent in the past three months. If EUFN
trades below $14, it is vulnerable to a return to its 52-week low
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