The Definitive Guide to Eastern Europe ETFs
Yes, we know what you're thinking. Now is not the time to be mulling the merits of investing in Europe. Add to that, it's now clear the sovereign debt crisis that has wreaked havoc on developed Europe has proven to be a bitter pill for emerging Europe to swallow as well.
Returns offered by ETFs with heavy Eastern Europe exposure? Try catastrophic losses recently and that tells investors a more sanguine market environment is needed to embrace this region. On the other hand, Eastern Europe ETFs are now on sale, offering adventurous investors the opportunity to perhaps start small positions in anticipation of an emerging markets comeback later this year.
Additionally, it cannot be ignored that countries such as Czech Republic and Poland offer rosier growth prospects over the next few years than say Greece, Italy or Spain. With that, we present the Definitive Guide to Eastern Europe ETFs. For the purposes of this guide, Russia-specific ETFs were left off the list, but Turkey was included. As you'll see, Russia cannot be ignored because multi-country funds tracking this region are Russia-heavy.
iShares MSCI Turkey Investable Market Index Fund (NYSE: TUR) If we're going to please our middle school geography teachers, it should be acknowledged that Turkey isn't part of Europe, but the country has previously sought membership in the European Union. And with the contributions, or lack thereof, to the Euro Zone made by the likes of Greece, Turkey looks quite good by comparison.
The Turkish investment thesis is credible. The country's debt/GDP ratio is impressive, the lira is strong, the population is young and, unlike many other emerging markets, Turkey's economy is services-driven.
All that said, Turkey is still considered an emerging market and that explains why TUR is down 8.5% in the past month. The ETF needs to find support at $44 or risk a decline to $40.
SPDR S&P Emerging Europe ETF (NYSE: GUR) GUR has been around for over five years, but has less than $80 million in assets under management at the moment. That might be a sign investors have soured on this Russia-heavy ETF in the past month. That's probably the case as GUR, which devotes almost 59% of its weight to Russia and nearly 39% of its sector weight to energy names, has fallen in unison with oil prices.
Turkey and Poland combine for about 30% of GUR's weight while the Czech Republic and Hungary combine for another 8%. GUR's yield of almost 4% and a P/E ratio below six might be alluring, but the fun trades less than $1 above its 52-week low. If oil prices continue falling, so will Russian equities and so will GUR.
Market Vectors Poland ETF (NYSE: PLND) The Market Vectors Poland ETF was the original fund devoted to Poland, but it quickly got a rival in the form of the iShares MSCI Poland Investable Market Index Fund (NYSE: EPOL). With over $107 million in AUM, EPOL has proven more prolific at drawing inflows, though it's doubtful either fund is seeing anything but outflows these days.
Each are down about 14% in the past month and both are trading at new 52-week lows today. Financials, materials and energy names lead the way at the sector level in both funds. Those aren't groups to be excited about at the moment, but Poland's 2012 GDP growth is the highest projected growth number for any of the EU's 27 member nations.
EPOL has been the slightly better performer of this duo over the past two years and currently features a yield that is approaching 5%. PLND's yield is near 4%.
EGShares Low Volatility Emerging Markets Dividend ETF (NYSE: HILO) That sounds nice, doesn't it? Low volatility and dividends under one wrapper? Problem for HILO, a fund we really do like, is that it's also an emerging markets fund and that's enough for the market to send it packing these days.
Thailand, China and Brazil account for over half of HILO's country weight, but Hungary, Poland and Czech Republic account for another 15%. In the absence of Czech Republic and Hungary-specifc funds, HILO is a credible option for gaining exposure to those countries.
iShares MSCI Emerging Markets Eastern Europe Index Fund (NYSE: ESR) The iShares MSCI Emerging Markets Eastern Europe Index Fund is essentially the smaller rival to the aforementioned GUR, which is to say ESR is heavy on energy stocks and Russia. Actually, ESR is even heavier on those characteristics than GUR. ESR's energy sector exposure is almost 46% and its weight to Russia is excessive at 76%.
Others to consider: The EGShares Utilities GEMS Exchange ETF (NYSE: UGEM) with a 7.1% weight to Czech Republic and a 4.9% weight to Poland. The EGShares Health Care GEMS ETF (NYSE: HGEM) features a 5.2% weight to Hungary.
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