While Germany and France had a head start in the Eurozone
recovery, Italy was not far behind. Though Italy is yet to come out
of the recession,
and the Italian Government are optimistic that the Eurozone's third
largest economy will revisit the growth path in the last quarter of
the year ending a nine consecutive quarter long recessionary steak
Europe ETF investing 101
Italy's economic recession eased out in the third quarter when GDP
on a quarter-over-quarter basis and 1.9% on a year-over-year basis.
The rate of decline came in the low end of the forecast range of
0.1%-0.2% fall in GDP. Improvement in the industrial sector was
more than offset by shrinkage in Italy's services and farming
Although improvement in exports this year was the most eye-catching
part in the Italian story, Italy's trade balance returned to
surplus since August this year. EU trading partners accounted for
of total Italian foreign trade in September, while trade with
non-EU members make up the remaining 45.7%. Thus, with the majority
of European countries on a rebound, an improved trading activity is
expected for Italy ahead.
Considering the entire scenario, Italian recovery is way behind its
pre-crisis level thanks to the extremely high debt to GDP ratio
(more than 100%), unenthusiastic credit ratings and an elevated
level of unemployment rate which infact treaded higher in September
) form August.
However, the country embarked on a recovery trail and the crisis
seemed to have bottomed out. It is now just a matter of time for a
full-fledged comeback (read:
Why PIIGS ETFs Are Outperforming
Given Italy's ruffled but rebounding fundamentals, a look at the
top ranked Italy ETF in the Europe ETFs space could be a good idea,
especially when using our Zacks ETF Ranking system.
About the Zacks ETF Rank
The Zacks ETF Rank provides a recommendation for the ETF in the
context of our outlook for the underlying industry, sector, style
box or asset class (Read:
Zacks ETF Rank Guide
). Our proprietary methodology also takes into account the risk
preferences of investors. ETFs are ranked on a scale of 1 (Strong
Buy) to 5 (Strong Sell) while they also receive one of three risk
ratings, namely Low, Medium or High.
The aim of our models is to select the best ETFs within each risk
category. We assign each ETF one of five ranks within each risk
bucket. Thus, the Zacks ETF Rank reflects the expected return of an
ETF relative to other products with a similar level of risk.
For investors seeking to apply this methodology to their portfolio
in the European equities space, we have taken a closer look at the
top ranked EWI. This ETF has a Zacks ETF Rank of 1 or 'Strong Buy'
(see the full list of
) and is detailed below:
EWI in Focus
Launched in March 1996,
iShares MSCI Italy Capped ETF
) is a passively managed exchange traded fund (ETF) looking to
deliver the return of the MSCI Italy 25/50 Index.
The fund is one of the most popular in the Europe equities space
with more than $842.0 million in assets. However, the choice is a
bit concentrated both from an individual security and sector
With 24 stocks in its basket, this fund from iShares puts as much
as 64.0% of its total assets in the top 10 holdings, suggesting
high concentration risk. Top companies include ENI SPA - taking up
18.4% share of the basket, and Unicredit SPA and ENEL SPA
accounting for a respective of 7.2% and 6.6% of the total (see
3 Top Ranked Mid Cap Value ETFs in Focus
In terms of sector exposure, financials comprise roughly one-third
of the total assets while energy companies make up around one-fifth
of the fund. Beyond this, utilities, industrials and consumer
discretionary round out the rest of the top five - all having
double-digit exposure - making up a combined 40%. Telecommunication
(5.64%) gets the least weight.
With a huge trading volume of around 1,300,000 shares a day, the
fund provides investors ample liquidity. The choice is also a
cheaper one as it charges 49 basis points in fees a year which is
below the average expense ratio 54 basis points in the Europe
equities space. In fact, higher trading volume led to relatively
Style-wise, growth funds account for only 28% of the portfolio
while value share sit at the top with 64% exposure keeping the fund
away from excessive volatility. As much as 79% focus on large caps
also calls for lower volatility (see
3 Top Ranked Europe ETFs to Buy Now
The fund has returned around 12.8% in the year-to-date frame ending
November 15, 2013 which is not far behind the 18% return of the
broader European fund
Vanguard FTSE Europe ETF
). EWI has returned a decent 19.6% in the last one-year period
ended September 30, 2013. The fund is currently hovering near its
52-week high level. EWI pays out a yield of 2.03% per annum.
EWI could be a winner as the underlying country is about to return
to growth. So, for investors willing to be part of this uptrend.
EWI may be an interesting choice.
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ISHARS-ITALY (EWI): ETF Research Reports
VANGD-FTSE EUR (VGK): ETF Research Reports
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