Poland ETFs Soar As Investors Reconsider Local Stocks

Emerging markets are soaring this year. Predictably, that has investors focusing on many of the largest developing economies, but an oft-overlooked market is displaying leadership. Poland, one the largest economies in the Emerging Europe region, is one of this year's best-performing individual emerging markets.

Poland Pride

The iShares MSCI Poland Capped ETF EPOL, the larger of the two Poland exchange-traded funds listed in the United States, is up 21.4 percent year-to-date while the VanEck Vectors Poland ETF PLND is higher by almost 21 percent. PLND is the older of the two Poland ETFs. Gains for the Poland ETFs are well ahead of the 11.5 percent returned by the MSCI Emerging Markets Index.

Poland ETFs Flying High

Poland ETFs are rising as investors in the country are renewing enthusiasm for local stocks after a period of avoiding stocks.

“Retail investors in Poland have turned their back on stocks in recent years. Brokerages closed 22,000 of unused clients’ accounts in 2016, according to Polish clearing and depository house KDPW. That contrasts with a 30 percent increase to 1.44 million in 2010,” reports Bloomberg.

The Polish equity is small both in terms of number components and market value when measured against other emerging markets. For example, EPOL and PLND combined have just 65 holdings. The market there is concentrated in just a few sectors. For example, EPOL allocates about three-quarters of its weight to three sectors – financial services, energy and materials. Financials and energy combine for 57.6 percent of PLND's weight.

U.S. investors' enthusiasm for EPOL has been decent this year. The ETF has added $27.4 million in new assets, a fair percentage of its $260.3 million in assets under management.

On valuation, EPOL trades almost in line with the MSCI Emerging Markets Index, but Polish stocks are historically more volatile than the emerging markets benchmark. That trait has been on display this year as EPOL has been more than 50 percent more volatile than the MSCI Emerging Markets Index.

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