Market Overview

Playing With PIIGS...ETFs That Is

Playing With PIIGS...ETFs That Is

There are still pockets of weakness among the PIIGS (Portugal, Ireland, Italy, Greece and Spain), the countries previously and some still known as Europe's problem children, but investors should not outright shun opportunity with the PIIGS.

These Little PIIGS Went To Market

Entering Tuesday, just two of the five PIIGS' single-country exchange-traded funds – the iShares MSCI Irld Cp Invstb Mrkt Indx Fd (NYSE: EIRL) and the iShares MSCI Italy Index (ETF) (NYSE: EWI) – were higher on a year-to-date basis.

Not surprisingly, the worst performer of the quintet has been the Global X FTSE Greece 20 ETF (Global X Funds (NYSE: GREK)), which among other issues, has recently dealt with another market classification demotion and another national election.

Related Link: This Europe ETF Has Gotten Popular In A Hurry

Although it is down more than 10 percent year-to-date, the iShares MSCI Spain Capped ETF (NYSE: EWP) is seen as one of the strongest individual PIIGS' ETFs alongside EIRL, the Ireland ETF.

“As for the Spanish ETF, it is valued at around 1.35 times book value, 20 basis points below the global average. The dividend yield of this ETF stands at around 3.8 percent, compared to the global benchmark average of 3.16 percent, according to Morningstar,” reported Barron's.

The European Central Bank's rendition of quantitative easing, unveiled earlier this year, has reportedly been a boon for commercial real estate deals in Portugal and Spain.

Should that trend continue, it could and should benefit EWP, an ETF that allocates nearly 42 percent of its weight to financial services stocks. That is more than two and a half times larger than EWP's second-largest sector weight.

Related Link: Going Greek: Unique ETFs For Accessing Greek Stocks

Spanish stocks are also inexpensive. EWP's P/E ratio is just below 16, implying a discount to the S&P 500 and the EURO STOXX 50 Index. Compelling valuations are one reason why investors have pumped $256.6 million into EWP this year.

Over the past two and a half months, yields on the benchmark Italian government bond have fallen about 65 basis points, as some investors have warmed to the notion that lower oil prices and the weak euro will bolster Italian stocks while lifting the eurozone's third-largest economy out of a recession. EWI, the largest Italy ETF trading in New York, entered Tuesday up 9.2 percent this year.

“Gross domestic product is seen expanding 0.9 percent in 2015, up from 0.7 percent projected by the government in April, and then in 2016 more than the 1.3 percent previously forecast,” Bloomberg reported, citing Prime Minister Matteo Renzi.

Investors have added $274.1 million to EWI this year. Only GREK has seen larger inflows among the PIIGS single-country ETFs.

Another ETF Option

For the investor that does not want to make a single-country bet on the PIIGS, the new Deutsche X-trackers MSCI Southern Europe Hedged Equity (NYSE: DBSE) is an interesting option.

DBSE, which debuted last month, is the closest fund on the market today to a true PIIGS ETF.

Looking a little closer, DBSE is essentially a combination Spain/Italy ETF, as the countries combine for 95 percent of the fund's weight; however, that country mix could prove advantageous going forward.

Image Credit: Public Domain


Related Articles (EWI + EIRL)

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