S&P Touts A Pair Of Country ETFs For Sector Exposure

The idea of buying a country-specific ETF to gain exposure to a particular sector is hardly new. After all, a vast number of country-specific ETFs are heavily allocated to just one sector. For example, large-cap Russia ETFs are heavily allocated to the energy patch.

In a recent note, S&P Equity Research highlights the idea of using country ETFs for sector exposure. “We think a creative alternative to investing in industry sectors is through country ETF securities. We believe this is a way to gain a higher percentage exposure to specific industries or sectors an investor may favor,” said S&P Vice President and ETF analyst Kenneth Leon in the note.

S&P highlights two developed market ETFs with exposure to emerging markets growth that fit the bill of taking advantage of high allocations to a small amount of industry groups.

The firm notes the iShares MSCI Canada Index Fund (NYSE: EWC) is one idea. The iShares MSCI Canada Index Fund devotes almost 80% of its sector weight to financials, energy and materials. Toronto-Dominion Bank (NYSE: TD), Potash Corp. (NYSE: POT) and Barrick Gold (NYSE: ABX) are among the familiar names found among the top-10 holdings of the iShares MSCI Canada Index Fund.

S&P has a “marketweight” rating on EWC, which has an expense ratio of 0.53% and assets under management of over $5 billion.

Looking to the other side of the Atlantic, S&P likes the iShares MSCI U.K. Index Fund (NYSE: EWU). S&P notes the U.K. “can control its own destiny” because it does not use the euro and the Bank of England has been accomodative since the start of the financial crisis.

The iShares MSCI U.K. Index Fund earns an “overweight” rating from S&P and the research firm notes that many of the ETF's top holdings have emerging markets exposure. The $1.1 billion ETF holds 105 stocks with an expense ratio of 0.53%. Top-10 holdings include Royal Dutch Shell (NYSE: RDS-A) and BP (NYSE: BP), Europe's two largest oil companies.

Energy names and financials combine for 39% of EWU's sector weight while consumer staples and materials combine for another 29%.