Last Friday, the U.K. became the latest country to lose the
prestigious AAA credit rating when Moody's Investors Service
downgraded the kingdom to Aa1, citing sluggish economic growth
and a growing debut burden.
The U.K., the world's sixth-largest economy,
according to the CIA World Factbook
, is not alone in having lost the AAA rating. Recent departures
include Austria and France as well as the U.S. in 2011. Do not
bet on any of those countries or any of the others that have lost
the perfect rating to get it back anytime soon.
Canada lost its AAA rating from Standard & Poor's in 1992
and could not get it back until 2002,
The Independent reported
. Australia lost its AAA rating in 1986 and did not get it back
until 2003, according to the paper.
While one issue has nothing to do with the other, as developed
world government balance sheets have deteriorated, the ETF
industry has grown. That means there are plenty of country
with which to measure the impact of the loss of the AAA credit
rating. Investors in the iShares MSCI U.K. Index Fund (NYSE:
) will want to have a look at the following.
Note this list looks at the performance of select Europe ETFs
following the first loss of the AAA rating. For example, if
Moody's downgraded the country in January, but Standard &
Poor's followed in April, this list measures the performance of
the ETF from the first downgrade.
iShares MSCI France Index Fund (NYSE:
) S&P stripped France of the AAA rating in January 2012 while
chimed in on the Eurozone's second-largest
economy in November of that year
EWQ, the lone France ETF, gained almost 10 percent in the
month following the S&P downgrade, but three months later the
ETF was barely in the green. Six months following the S&P
downgrade, EWQ had lost 3.73 percent. On the bright side, EWQ has
jumped 6.3 percent in the past year.
iShares MSCI Austria Capped Investable Market Index Fund
) S&P took Australia's AAA rating from Austria at the same
time it took the stellar rating from France. However, the
immediate performance of the iShares MSCI Austria Capped
Investable Market Index Fund might deceive some investors into
thinking the headlines did not matter. About 11 weeks following
the news, EWO had surged nearly 19 percent.
The gains quickly wilted, though. A month later, EWO's
post-downgrade gain was just 10.8 percent. Six months removed
from the loss of the AAA rating, EWO was trading where it was
pre-downgrade. To be fair, EWO, like EWQ, trades at much higher
prices today than where it did before and in the months
immediately following the loss of AAA credit.
iShares MSCI Spain Capped Index Fund (NYSE:
) The performance of the iShares MSCI Capped Index Fund in the
wake of Spain no longer being an AAA nation is arguably a case of
good and bad timing. S&P made the call in early 2009, at the
height of the global financial crisis. However, the ETF was then
positioned to take advantage of the March 2009 market bottom.
To that end, EWP was up more than 13 percent 90 days after the
downgrade. Six months later, the ETF was up nearly 40 percent.
Proving that all good things must come to an end, Spain's
problems proved too much for EWP to handle over the past couple
of years and EWP is now found residing at almost exactly the same
price as where it traded a day after Spain ceased being an AAA
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