3 Words On The Spain ETF: Está Muy Bien

Somewhat lost in the scuttlebutt regarding resurgent Europe exchange-traded funds this year is the iShares MSCI Spain Capped ETF EWP.

The iShares MSCI Spain Capped ETF, the largest U.S.-listed ETF dedicated to Spanish stocks, is up nearly 26.6 percent year to date and resides just half a percent below its 52-week high. To put EWP's bullishness into context, the ETF is thumping its Franc and Germany rivals as well as the S&P Europe 350 Index and the MSCI EMU Index.

Hola, España!

Economic data are supportive of more upside for stocks in Spain, the eurozone's fourth-largest economy behind Germany, France and Italy. Importantly, job growth is rebounding, a key element for the recovery in Spain after the country had one of the region's worst jobless rates during the European debt crisis.

“Higher workloads are feeding through to job creation,” said Markit in a recent note. “This was particularly the case in the manufacturing sector, where the rate of jobs growth hit a 19-year high in May. Sustained hiring will help to make further dents in the still-high levels of unemployment in Spain, something which will inevitably be needed if economic growth is to continue at the current rate.”

EWP, which tracks the MSCI Spain 25/50 Index, is a concentrated ETF, even for a single-country fund. The ETF holds just 25 stocks and over 40 percent are from the financial services sector. That is more than double the ETF's second-largest sector weight, which is industrials. Utilities represent nearly 11 percent of EWP's roster.

Things To Keep In Mind

While there are still looming national elections for eurozone countries to deal with this year, Spain is not highlighted by global investors as one of the countries where political volatility could be an issue later in 2017. That is a positive change from the country's recent history when lack of a permanent government weighed on Spanish financial assets.

Improving purchasing managers index (PMI) data also bodes well for EWP.

“Looking at the historical relationship between PMI employment data and official quarterly figures, the latest data suggest that total employment is set to rise at least 2.5 percent year-on-year in the second quarter of 2017,” said Markit. “This would represent around 300,000 extra jobs in the economy over the quarter, further helping to reduce the still-high levels of unemployment in Spain.”