ETF Investors Seek Out Europe's Most Indebted Places


Tourists sit on rocks with a view of the Parthenon temple in Athens. Photograph by Angelos Tzortzinis/Bloomberg Close

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Tourists sit on rocks with a view of the Parthenon temple in Athens. Photograph by Angelos Tzortzinis/Bloomberg

While much of Europe is on holiday, investors in the continent's most debt-laden countries are getting relief from its debt crisis. This past month has seen a surge in the exchange-traded funds that track Ireland, Italy, Greece and Spain, four of five beleaguered economies that, with the addition of Portugal (which doesn't have an ETF), have been given the acronym "PIIGS."

Stocks in each of the countries rose more than 5 percent in the past month. That tops the MSCI Europe Index's 1.5 percent gain and the S&P 500's 2 percent loss. The investor perception of Europe is starting to change, as many think its nascent recovery has legs. In addition, credit risk may have bottomed out for these formerly shamed countries, allowing for a higher bounce-back than in the broader market.

Here is the one-month performance for ETFs tracking these countries:

iShares MSCI Ireland Capped ETF (EIRL) -- up 6 percent

iShares MSCI Italy ETF (EWI) -- up 6 percent

Global X Greece ETF (GREK) -- up 10 percent

iShares Spain ETF (EWP) -- up 9 percent

While there is no ETF that tracks Portugal, the MSCI Portugal Index is up 5.7 percent in the past month. The ETF with the most exposure to Portugal is the Guggenheim Timber Index ETF (CUT), which has a 5 percent allocation. Global X has a Portugal ETF awaiting approval from the Securities and Exchange Commission, but there's no word on when or if it will roll out.

The four ETFs that track the PIIGS countries have all seen big jumps in assets, which have have collectively almost doubled to $1.3 billion from $700 million at the start of the year. Aside from the opportunity for returns, the inflows into these single-country ETFs could be attributed to the fact that the countries have little representation in broader Europe ETFs. Vanguard FTSE Europe ETF (VGK) has a total of 8 percent allocated to PIIGS countries, and that’s mostly Spain. In other words, if you really think the stock markets in countries will continue to gain, you have to look outside the mainstream ETFs.

An actual ‘PIIGS' ETF could make a lot of sense. It would allow investors to play the recovery in these badly beaten markets, lessen the single-country risk and get Portugal involved. Whoever issues the ETF might want to think about that name, though.

Eric Balchunas is an exchange-traded-fund analyst at Bloomberg. More ETF data is available here, and weekly ETF podcasts can be found here.

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