Poland ETF Investing 101
Amidst the intensifying European problems, Poland is the only emerging nation in the region that has avoided recession until now. In fact, the country stands out as a major gainer during the global recession when compared to its neighboring countries, generating 4.8% growth in 2008, 1.7% in 2009 and 3.8% in 2010 (read: Three Resilient European ETFs Still Going Strong).
Furthermore, the Polish economy expanded 4.3% last year. This growth now appears to be slowing down due to increasing problems in Western Europe, falling domestic demand, ongoing fiscal consolidation, and slowing public investment.
As a result, the growth is expected to fall to 2.4% this year and then to 2.1% in the next, as per IMF. However, these expectations are better than the other emerging European countries, although inflation is still a troubling issue, coming in at 3.55% over the summer.
Among the risks, current unemployment rate at 12.4% is the major concern for the nation’s growth. The Polish economy, the sixth largest economy in the euro zone, has also experienced substantial trade deficits over the past several years. The trade deficit is now expected to rise to 3.5% of GDP from the previous forecast of 2.9% this year.
The country mainly exports machinery and equipment, textiles and footwear, metals and metal products, minerals and fuels, chemicals, and agricultural products. Germany is the largest trading partner of Poland (accounting for about 25% of the exports), followed by Italy, France, Turkey, Hungary and Bulgaria (read: The Comprehensive Guide to German ETF Investing).
Despite several issues, the Eastern European nation arguably has a much better investing climate than the majority of its neighbors to endure a sharp economic downturn. This is because Poland has far less worries on the corruption front while having a well-educated and tech savvy workforce. In fact, Poland currently ranks in the top fifty countries from a competitiveness standpoint, beating nearby Russia out by over 20 places.
Thanks to this competitiveness and large size of the Polish economy (the nation is one of the 20 largest economies in the world), it could be time to give the nation a closer look. Poland still enjoys a stable credit rating from the three major agencies and its financial system remains steady.
Further, the ongoing turmoil in the European markets and a still dismal job scenario in the U.S., investors are looking to shift their exposure to the emerging European market, in particular Poland, which is among the best-performing emerging countries (read: Get True Emerging Market Exposure With These Three ETFs).
How to Play?
With that being said, we still believe Polish economic and political conditions are stronger relative to other European countries, compelling investors to play there over the other markets in the region. Currently, investors have two Polish ETF options in the market, each of which offers great exposure to the nation’s economy (read: Poland ETFs Head-To-Head).
An ETF approach in the basket form is the best way that provides strong returns with minimum risk thanks to diversification and tax benefits. The details of these ETFs are provided below:
iShares MSCI Poland Investable Market Index Fund (EPOL)
Investors seeking broad exposure to the Polish equity market might find EPOL an interesting pick. Launched in May 2010, the fund seeks to match the price and yield of the MSCI Poland Investable Market Index, before fees and expenses.
The product focuses largely on the large cap segment of the Polish market and holds 45 securities in its basket. The majority of holdings are classified as blend stocks from a style perspective. The fund is heavily concentrated in its top 10 holdings with nearly 69% of the total assets. The top three companies combined to make up for nearly 34% share of the portfolio.
From a sector perspective, the product has a certain tilt towards the financial sector making up 42% of the ETF (read: Does Your Portfolio Need a Financial ETF?). Materials, energy, utilities and telecommunication services round up to comprise the next four sectors with a combined 47% share.
With AUM of $140.7 million, the product charges 59 bps in fees per year from investors. Volume is quite good, trading in more than 70,000 shares per day on average, suggesting a tight bid ask spread. The ETF has generated outstanding returns of over 28% so far in the year (as of October 16) and yields an impressive annual dividend of 4.83%.
Market Vectors Poland ETF (PLND)
Launched in November 2009, the fund tracks the Market Vectors Poland Index, which consists of 25 companies that are either headquartered in Poland or produce at least 50% of their revenues from the nation (see more ETFs in the Zacks ETF Center).
The fund holds 30 securities in its basket, with a heavy focus on the top 10 holdings that account for about 60% of the assets. The top three companies dominate more than 24% of the holdings. Though the product puts more focus on large cap stocks, mid cap takes 22% share with only 1% going to small caps.
In terms of holdings, financials consists of more than one-third of the holdings followed by double-digit weightings to materials (16%), energy (16%), and utilities (12%). The ETF has total assets of $32.5 million and sees a moderately good volume of about 13,000 shares per day.
This implies that investors have to pay additional cost in the form of a wide bid/ask spread, beyond the expense ratio of 0.60%. The product lags EPOL by a single basis point in terms of fees (read: Are Analyst Recommendation ETFs Worth the Cost?).
PLND has generated excellent returns of nearly 25% year-to-date (as of October 16) and yields a good dividend of 3.60% annually. This suggests that investors have a decent long-term choice on their hands in this Poland ETF.
Provided below is the summary of the two Polish ETFs discussed above for those seeking a side-by-side comparison:
EPOL | PLND | |
Inception Date | 05/25/2010 | 11/24/2009 |
Index | MSCI Poland Investable Market Index | Market Vectors Poland Index |
AUM (in millions) | $140.7 | $32.5 |
No. of Holdings | 45 | 30 |
% of assets in Top 10 Holdings | 68.83% | 60.13% |
Expense Ratio | 0.59% | 0.60% |
YTD Return (as of October 16) | 28.13% | 24.62% |
Dividend Yield | 4.83% | 3.60% |
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Read the analyst report on EPOL
Read the analyst report on PLND
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Read the analyst report on EPOL, PLND
