With one day trading day already in the books, an ominous, but
familiar theme is emerging this week: Europe roiling global
markets and the corresponding
being taken to the woodshed here in the U.S.
Shares of the iShares MSCI Italy Index Fund (NYSE:
) sank 5.7 percent on volume that was better than triple the
daily average as Italian election results showed former Prime
Minister Silvio Berlusconi's conservative party in position to
take a majority in that country's senate.
Italy fears dragged the iShares MSCI Spain Index Fund (NYSE:
) lower by nearly 5.4 percent on almost quadruple the average
daily turnover. None of this was good for the Global X FTSE
Greece 20 ETF (NYSE:
), which plunge almost 8.1 percent on better than triple the
Of course, the iShares MSCI U.K. Index Fund (NYSE:
) cannot be forgotten. That ETF lost 2.3 percent on heavy volume
in the first full trading session after Moody's Investors Service
stripped the U.K. of the prestigious AAA credit rating.
All of those factors have the ProShares UltraShort MSCI Europe
) set up for a very nice week. Emphasis on "week" given EPV's
penchant for disappointment over
long-term holding periods
EPV gained nearly six percent on almost quadruple its average
volume Monday and a look at what exactly the ETF does indicates
more near-term upside could be on the way. For starters, EPV is
designed to deliver twice the daily inverse performance of the
MSCI Europe Index. That index is currently tracked by the popular
Vanguard MSCI Europe ETF (NYSE:
Ultimately, the loss of the AAA rating may not be much
of a hindrance to EWU
, but for now it clearly is not helping matters. That is relevant
to EPV because the MSCI Europe Index allocated almost 34 percent
of its weight to the U.K. as of the end of January,
according to MSCI data
That is more than double the 14.64 weight France has in the
index. Combine Germany and Switzerland and the result is still
just 27 percent of index's weight, affirming the notion that
weakness in the U.K. is bad for this index, which is good for
Additionally, EPV could be boosted by a classic
perception/reality debate. The reality is Italy and Spain are not
significant portions of the MSCI Europe Index's weight. The two
countries combine for just 8.2 percent of VGK,
according to Vanguard
All told, the five PIIGS nations equal just nine percent of
VGK's weight. In a more sanguine environment, that reality would
matter. However, it is the perception that the MSCI Europe Index
is heavy on the Eurozone's most troubled constituents that bodes
well for EPV this week.
Again, EPV must be treated as a short-term trade, not a
buy-and-hold investment. The one-year returns serve as a
reminder. Before the start of trading Monday, VGK was up 7.14
percent in the past year. EPV was much worse than twice as bad as
VGK over that time. Prior to Monday, EPV had plunged 31.4 percent
over the past 12 months.
Those who do not enjoy the adrenaline rush of leveraged ETFs,
but still want to profit from tumbling European stocks should
consider the ProShares Short MSCI EAFE (NYSE:
). EFZ is the unleveraged inverse equivalent of the iShares MSCI
EAFE Index Fund (NYSE:
). Roughly two-thirds of EFA's weight is allocated to European
nations. The U.K., France and Switzerland combine for 40 percent
of EFA's weight.
For more on ETFs, click
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