The European woes are getting deeper with the unresolved euro
zone crisis, sending the world economy to the doldrums. In fact,
the EU saw a contraction of 0.2% in the second quarter, marking the
second time in three quarters that the region has registered
A number of major European economies in the southern Euro zone,
such as Italy, Spain and Greece, could be in some serious trouble
and could face a low growth environment due to budget cuts, tight
fiscal policy, rising unemployment, wage cuts and high debt levels
Beyond the PIIGS, Three Troubled European ETFs to
At the same time, many European countries are showing remarkable
performances or better, suggesting that there might still be some
interesting choices for investors looking to dial up their exposure
to beaten down securities in the region.
In this regard, smaller European economies have been overlooked
by investors and could well be worth playing. These countries have
ETF options available that can provide direct and diversified
access to their economies. The funds also have a lower correlation
with the broad markets and, thus, can outperform in a crumbling
Below, we have highlighted the three European ETFs of the euro
zone, which have managed to deliver respectable returns so far in
2012 despite being overlooked by most investors (read:
Three European ETFs That Have Held Their Ground
While these noteworthy performances might not continue,
especially if Europe remains sluggish, any one of them could still
be a solid pick for investors looking for a different way to play
this important region:
- iShares MSCI Belgium Investable Market Fund (
Though the Belgian economy has decent growth prospects and low
inflation, high unemployment and fiscal deficit remain lingering
issues. Public debt is approaching 100% of GDP and economic turmoil
in Europe is affecting the country's export, the major driver of
Belgian economic growth. Further, the nation still has to fully
emerge from the 2008 financial crisis that had severely affected
three major banks.
However, as euro zone problems are expected to ease in 2013
leading to increase in the country's exports with a modest revival
in consumer spending, the Belgian economy is set for expansionary
mode in the future.
Investors seeking to invest in the country may find EWK an
intriguing choice. The fund has produced impressive returns of more
than 21% so far in the year and yields an excellent dividend of
Three Excellent Dividend ETFs for Safety and
). Such exceptional returns are much more than the expense ratio of
With a holding of 49 stocks, the product tracks the MSCI Belgium
Investable Market Index, before fees and expenses. Large caps
account for 56% of the portfolio while mid and small caps take the
remaining portion of the basket.
The product has a heavy concentration in the top securities,
Anheuser-Busch Inbev (
, which makes up for more than 24% of total assets alone while the
top 10 holdings account for more than 70% of the assets. This
suggests that the top 10 holdings dominate the returns of EWK.
From a sector perspective, consumer staples take the top spot in
the basket with a 34% share, followed by financials (24%) and
materials (13%) (read:
The Comprehensive Guide to Consumer Staples
Launched in March 1996, the ETF has attracted assets of $25.5
million this year. The fund trades in good volume of more than
60,000 shares per day, suggesting minimal extra trading cost in the
form of bid/ask spread.
Austria - iShares MSCI Austria Investable Market Index
Austria is one of the richest countries in the world from a per
capita GDP perspective. While the current account balance is not
favorable compared to the other euro zone neighbors, the nation
does a great deal of trade with Germany, which is still arguably
the strong performer in the euro zone (read:
The Comprehensive Guide to German ETF Investing
Additionally, low inflation, little public debt and low
unemployment in the country are boosting its economic growth.
However, the Austrian economy is largely governed by the financial
institutions and banks that could hamper the future growth,
especially with the intensifying euro zone problems.
To target the Austrian market, investors have only one fund -
EWO - initiated in March 1996. The fund returned no less than 10.5%
year-to-date with an attractive dividend yield of 3.37%. Such
returns are more than the annual fees of 52 bps.
The product seeks to match the performance of the MSCI Austria
Investable Market Index, holding 34 securities in the basket. Like
the other funds in the European space, large caps dominate the
holdings with a tilt toward the value securities. The product
allocates a large part of its assets to financials (35%) while
industrials, materials and energy make up the next three slots in
Like EWK, the fund puts more focus on its top 10 holdings, as
OMV, Erste Group Bank and Andrtiz combined make up for nearly 34%
of the total assets. In addition, it is more volatile than its
Belgium counterpart. With AUM of $54.1 million, the fund trades in
good volume of about 78,000 shares per day, suggesting minimal
extra trading cost or no cost in the form of bid/ask spread.
- iShares MSCI Ireland Capped Investable Market Index
The Irish economy is showing improvement this year and is
gradually recovering from the 2008 crisis thanks to the ongoing
fiscal consolidation, reviving domestic demand and firming exports.
As euro zone problems are expected to ease in 2013, exports will
start to regain strength, considered the most important driver for
However, the public debt of Ireland is still a major concern,
currently standing at 108% of GDP, and is climbing up to 117% of
GDP by the end of 2012. High unemployment rates and fiscal deficit
are also adding to the negative economic sentiment.
For investors seeking to play Ireland, EIRL is pretty much the
only choice. Among the PIIGS, Irish funds have managed to perform
strongly so far in 2012. In fact, EIRL delivered excellent returns
of about 17% year-to-date, easily outpacing the other four members
of the dubious group (read:
Five Top Performing Single Country ETFs of 2012 (So
). The fund also yields a good dividend of 1.71% annually.
The product was launched in May 2010 and has total assets of
$8.4 million under its management. It tracks the MSCI Ireland
Investable Market 25/50 Index, before fees and expenses.
The fund holds 21 securities in the basket, with greater
allocation going to the top 10 firms. CRH Plc, Kerry Group and ELAN
Corp hold the top three positions with a combined share of 43%.
From a sector perspective, materials, consumer staples, and
industrials take the top three spots in the basket, with 26%, 23%
and 23%, respectively.
The product has a nice mix of various asset classes. While large
caps account for 34%, mid and small caps hold 28% and 38% of the
assets, respectively. The fund has a slight tilt toward the value
Small Cap Value ETF Investing 101
). Like many other funds in the space, this Irish fund charges 52
bps in fees per year from the investor. In addition, the fund
involves extra cost in the form of wide bid/ask spreads thanks to
the paltry volume of trading on a daily basis.
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ANHEUSER-BU ADR (BUD): Free Stock Analysis
ISHARS-MS IRLND (EIRL): ETF Research Reports
ISHARS-BELGIUM (EWK): ETF Research Reports
ISHARS-AUSTRIA (EWO): ETF Research Reports
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