ETFs For A Hungary Bailout (HILO, EWO)
Hungary, an emerging economy, is having its fair share of fiscal problems much like its developed Europe counterparts. The Eastern European nation is on the brink of a credit crunch as foreign banks pull funding. The country's ratio of non-performing corporate loans stood at 17% at the end of last year and that ratio could jump by the end of next year, according to Reuters.
Hungary has the highest debt/GDP ratio, 80% in Eastern Europe. The country was downgraded to junk status by Moody's late last year. Yields on Hungarian 10-years have been as high as 9% recently and still hover above 8%. That's enough to make even Italy and Spain blush.
Still, it should be noted that Hungary is looking to negotiate a $20 billion to $26 billion bailout package and that would presumably be a good thing in the near-term for Hungarian equities. Until a Hungary ETF comes to market, investors can use the following funds to potentially benefit from a bailout of the financially challenged emerging economy.
EGShares Low Volatility Emerging Markets Dividend ETF (NYSE: HILO) We've previously been bullish on HILO due to its low beta/high dividend combination. In less than a year trading, HILO has over $59 million in AUM, indicating investors love the emerging markets/yield combination. HILO's index features a yield of 6.44%.
As a low beta ETF, it's not surprising to see almost 45% of HILO's combined sector weight allocated to telecoms and utilities. That's where the Hungary exposure comes in; a 5.1% weight to Magyar Telekom. Buy HILO because of the yield, the low beta and an almost 17% allocation to Thailand and you get the potential for a post-bailout Hungary pop.
SPDR S&P Emerging Europe ETF (NYSE: GUR) For those looking for some Eastern Europe exposure with a small Hungary kicker, GUR works. An almost 40% weight to the energy sector and a 62.2% allocation to Russia means one thing: GUR is volatile. The statistics prove that: The ETF is up 14% year-to-date, but down more than 7% in the past month. Hungary gets a weight of 3.77% here and the yield is fair at 3.27%.
iShares MSCI Austria Investable Market Index Fund (NYSE: EWO) Battered and bruised, EWO has plunged almost 32% in the past year, but hey, at least Austria still has an AAA credit rating. Austria has played a leading role in Hungary's financial system and the central European nation has shown a correlation to Hungary's own economic growth, according to Emerging Money. That makes EWO a more conservative way of indirectly playing any bounce in Hungarian equities.
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