Amidst the intensifying European problems, Poland is the only
emerging nation in the region that has avoided recession until
now. In fact, the country stands out as a major gainer during the
global recession when compared to its neighboring countries,
generating 4.8% growth in 2008, 1.7% in 2009 and 3.8% in 2010
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Furthermore, the Polish economy expanded 4.3% last year. This
growth now appears to be slowing down due to increasing problems
in Western Europe, falling domestic demand, ongoing fiscal
consolidation, and slowing public investment.
As a result, the growth is expected to fall to 2.4% this year
and then to 2.1% in the next, as per IMF. However, these
expectations are better than the other emerging European
countries, although inflation is still a troubling issue, coming
in at 3.55% over the summer.
Among the risks, current unemployment rate at 12.4% is the
major concern for the nation's growth. The Polish economy, the
sixth largest economy in the euro zone, has also experienced
substantial trade deficits over the past several years. The trade
deficit is now expected to rise to 3.5% of GDP from the previous
forecast of 2.9% this year.
The country mainly exports machinery and equipment, textiles
and footwear, metals and metal products, minerals and fuels,
chemicals, and agricultural products. Germany is the largest
trading partner of Poland (accounting for about 25% of the
exports), followed by Italy, France, Turkey, Hungary and Bulgaria
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Despite several issues, the Eastern European nation arguably
has a much better investing climate than the majority of its
neighbors to endure a sharp economic downturn. This is because
Poland has far less worries on the corruption front while having
a well-educated and tech savvy workforce. In fact, Poland
currently ranks in the top fifty countries from a competitiveness
standpoint, beating nearby Russia out by over 20 places.
Thanks to this competitiveness and large size of the Polish
economy (the nation is one of the 20 largest economies in the
world), it could be time to give the nation a closer look. Poland
still enjoys a stable credit rating from the three major agencies
and its financial system remains steady.
Further, the ongoing turmoil in the European markets and a
still dismal job scenario in the U.S., investors are looking to
shift their exposure to the emerging European market, in
particular Poland, which is among the best-performing emerging
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How to Play?
With that being said, we still believe Polish economic and
political conditions are stronger relative to other European
countries, compelling investors to play there over the other
markets in the region. Currently, investors have two Polish ETF
options in the market, each of which offers great exposure to the
nation's economy (read:
Poland ETFs Head-To-Head
An ETF approach in the basket form is the best way that
provides strong returns with minimum risk thanks to
diversification and tax benefits. The details of these ETFs are
iShares MSCI Poland Investable Market Index Fund
Investors seeking broad exposure to the Polish equity market
might find EPOL an interesting pick. Launched in May 2010, the
fund seeks to match the price and yield of the MSCI Poland
Investable Market Index, before fees and expenses.
The product focuses largely on the large cap segment of the
Polish market and holds 45 securities in its basket. The majority
of holdings are classified as blend stocks from a style
perspective. The fund is heavily concentrated in its top 10
holdings with nearly 69% of the total assets. The top three
companies combined to make up for nearly 34% share of the
From a sector perspective, the product has a certain tilt
towards the financial sector making up 42% of the ETF (read:
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). Materials, energy, utilities and telecommunication services
round up to comprise the next four sectors with a combined 47%
With AUM of $140.7 million, the product charges 59 bps in fees
per year from investors. Volume is quite good, trading in more
than 70,000 shares per day on average, suggesting a tight bid ask
spread. The ETF has generated outstanding returns of over 28% so
far in the year (as of October 16) and yields an impressive
annual dividend of 4.83%.
Market Vectors Poland ETF (
Launched in November 2009, the fund tracks the Market Vectors
Poland Index, which consists of 25 companies that are either
headquartered in Poland or produce at least 50% of their revenues
from the nation (see more ETFs in the
The fund holds 30 securities in its basket, with a heavy focus
on the top 10 holdings that account for about 60% of the assets.
The top three companies dominate more than 24% of the holdings.
Though the product puts more focus on large cap stocks, mid cap
takes 22% share with only 1% going to small caps.
In terms of holdings, financials consists of more than
one-third of the holdings followed by double-digit weightings to
materials (16%), energy (16%), and utilities (12%). The ETF has
total assets of $32.5 million and sees a moderately good volume
of about 13,000 shares per day.
This implies that investors have to pay additional cost in the
form of a wide bid/ask spread, beyond the expense ratio of 0.60%.
The product lags EPOL by a single basis point in terms of fees
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PLND has generated excellent returns of nearly 25%
year-to-date (as of October 16) and yields a good dividend of
3.60% annually. This suggests that investors have a decent
long-term choice on their hands in this Poland ETF.
Provided below is the summary of the two Polish ETFs discussed
above for those seeking a side-by-side comparison:
MSCI Poland Investable Market Index
Market Vectors Poland Index
AUM (in millions)
No. of Holdings
% of assets in Top 10 Holdings
YTD Return (as of October 16)
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ISHARS-MS POLND (EPOL): ETF Research Reports
MKT VEC-POLAND (PLND): ETF Research Reports
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