Market Overview

Bye-Bye AAA: Euro Zone ETFs Hit After France Downgrade


We're not soothsayers, but we did recently wonder for how long some of the Euro Zone countries with AAA credit ratings could retain that lofty status.

Apparently, the answer is not for long. Our piece on ETFs for countries with AAA ratings was published on December 23, 2011. Here it is January 13, 2012 and France has lost its AAA rating after Standard & Poor's pared the country's credit rating by one notch to AA.

This is the first time France, the Euro Zone's second-largest economy, has lost its AAA rating. Austria is expected to lose its AAA status and despite a strong bond auction earlier this week, S&P cut Italy BBB+ from A, Bloomberg reported citing European Union official.

Not surprisingly, the news is plaguing the relevant country specific ETFs tracking members of the now former AAA club. The iShares MSCI France Index Fund (NYSE: EWQ) is down more than 2% in late trading. The ETF has over $251 million in assets under management and its largest holding at over 12% is Total (NYSE: TOT), Europe's largest oil company.

The iShares MSCI Austria Investable Market Index Fund (NYSE: EWO), which has $51 million in AUM and a 28.5% allocation to the finacial services sector, is off 2%. Though Italy hasn't been in the AAA club for a while, it's worth noting the iShares MSCI Italy Index Fund (NYSE: EWI) is lower by 3%. The ETF, with $98 million in AUM, devotes over 22.5% of its weight to Eni SpA (NYSE: E), Italy's largest oil company.

Even though Germany, the Euro Zone's largest economy, is expected to retain its AAA rating, the iShares MSCI Germany Index Fund (NYSE: EWG) is down 2.6% on light volume. Give it some credit because the Market Vectors Germany Small-Cap ETF (NYSE: GERJ) is actually up on the day.

Three guesses about the big surprise in terms of intraday performance among Euro Zone ETFs and the first two guesses don't count. Tick tock, time's up. Believe it or not, the newly minted Global X FTSE Greece 20 ETF (NYSE: GREK) is slightly higher on the day.

Posted-In: Analyst Color Long Ideas News Bonds Short Ideas Specialty ETFs Downgrades New ETFs


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