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Netherlands ETF Not Yet Reflecting Political Risks

January 13, 2017 8:28 am
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The iShares MSCI Netherlands Investable(ETF) (NYSE: EWN), the largest New York-listed exchange-traded fund dedicated to Dutch stocks, is up just over 4 percent year-to-date. That can be seen as a sign EWN and Dutch stocks are not yet reflecting potential political risks stemming from the March 15 national elections in the Netherlands.

Dutch Political ‘Winds

Geert Wilders, a candidate some international main stream media sources describe as “far right,” and his anti-European Union party have been gaining in recent polls. By some estimates, Wilders' anti-EU Freedom party could take 30 of 150 seats in the Dutch parliament in the March election.

In what could be the latest sign of the populist swell moving to new corners of the globe, Wilders is undoubtedly a controversial candidate. American's might be accustomed to that now with President-elect Donald Trump, but Wilders is no shrinking tulip.

Wilders has an openly anti-Islam stance and was found guilty in December for hate speech committed two years prior. His anti-Islam credentials were readily apparent in 2004 when he quit a liberal Dutch political party over its support for Turkey's membership in the EU. Wilders' current party wants to ban the Quran, shut mosques and depart the EU, reported The Telegraph.

This All Boils Down To Possible Volatility

So, yes there is the potential for volatility with EWN, an ETF that usually does not see much of that. EWN has a three-year standard deviation of just 14.1 percent. That is nearly a full percentage below the comparable metric on the iShares MSCI EMU Index (ETF) (BATS: EZU) and 260 basis points below the three-year standard deviation on the iShares MSCI Germany Index Fund (ETF) (NYSE: EWG).

It helps that EWN, home to nearly $167 million in assets under management, allocates 27.6 percent of its weight to the consumer staples sector. Unilever N.V. (ADR) (NYSE: UN) is EWN's largest holding at a weight of 15 percent. Industrial and financial services names combine for 39.5 percent of the ETF's weight while tech chimes in at just over 18 percent.

Last year, EWN rose 4.1 percent, outpacing EWG and the comparable Italy and Spain ETFs, but the Netherlands ETF did lag its France rival.

ETF flows data do not always tell the entire story, but for what it is worth, EWN took in less than $2 million in new money last year. To start 2017, no money has come into or departed the Netherlands ETF. Perhaps the fact EWN has not lost money can be interpreted as U.S. investors not being aware of the upcoming Dutch election or being comfortable with a Wilders victory.

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