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3 Country ETFs Upgraded to Buy - ETF News And Commentary

The year 2015 has so far been fruitful for developed international investing. European economies have soared across the broad thanks to the QE launch by the ECB and rock-bottom interest rate levels. The Japanese market too maintained the wining momentum on stepped-up stimulus measure.

Though the setting seems perfect for growing stock market participation, things are not out of the woods. Nagging Greek debt deal worries, heightened volatility in oil prices and overvaluation concerns derailed the market momentum occasionally.

In some cases, the threat is more acute for specific economies such as one that is heavily dependent on oil-driven revenues than can be thrashed in a declining energy price environment or vice versa. Thus, a periodic or quarterly update of an economy’s outlook is warranted to best capture that country’s true stock market potential.

In order to do so, we at Zacks revised our ETF ranks recently and found out that at a host of country ETFs presently are Buy rated. Below we highlight three country ETFs, the ranks of which are upgraded to ‘Buy’ in recent revision.

Japan– SPDR MSCI Japan Quality Mix ETF (QJPN)

International investing has taken center stage lately on a flurry of monetary easing. This was truer in the case of Japan as the country enhanced its asset buying program to 80 trillion yen a year at October 2014 end at the previous rate of 60–70 trillion yen to boost a sagging economy.

The country’s key stock index hit an 18-year high recently. With Japanese consumer spending still remaining soft, we expect this gigantic stimulus measure to stay for some more time.  Moreover, broader indicators are shaping up in the economy with the unemployment rate slipping to an 18-year low in April and growth picking up after a technical recession in Q2 and Q3 of 2014 (read: Introductory Guide to Japan ETF Investing).

This makes Japanese investing intriguing. To do so, QJPN comes across an interesting play as the fund looks to pick stocks on the basis of value, quality and low volatility criteria. The $13.2 million-fund is upgraded from Zacks ETF Rank #3 (Hold) to #1 (Strong Buy).

The fund currently holds 292 stocks and has very low company-specific concentration risk with no single stock occupying more than 2.48% of the total. Sector wise, Consumer Discretionary dominates the fund with 23.11% allocation, while Industrial (19.13%) and Financials (14.58%) occupy the next two spots. The fund charges 30 basis points as fees.  QJPN is up 13.3% so far this year (as of June 23, 2015).

Ireland – iShares MSCI Ireland Capped ETF (EIRL)

Ireland is the first Euro zone nation that came out of the bailout program in December 2013 and is presently one of the fastest growing in the pack. The ongoing fiscal consolidation, reviving domestic demand and improvement in the property market, export as well as banking sector are presently supporting Irish economic growth (read: 4 European ETFs to Buy on Cheaper Valuations, QE Launch).

Though still high, the unemployment rate is exhibiting a downtrend. The government expects to see single-digit unemployment rate by the end of 2015. The S&P expects the Irish economy to expand 3.6% on average in the coming three years, which will be one of the best performances
in the Euro bloc. The rating agency upgraded the country’s credit worthiness to the A+ status.

This phenomenon makes Ireland a compelling investment. The pure play ETF on Ireland, EIRL has undergone a rating upgrade from #3 (Hold) to #2 (Buy). The $109 million-fund holds a small basket of 25 stocks and charges 48 bps in fees (see all European Equity ETFs here).

The product is heavily concentrated in its top three holdings – CRG, Kerry Group plc and Bank of Ireland – which together form about 45% of total fund assets. Sector wise, Materials and Consumer Staples combine to make up 50% of the total fund assets. The ETF has returned about 20% so far this year (as of June 23, 2015).

Norway – iShares MSCI Norway Capped Investable Market Index Fund (ENOR)

This is rather a risky choice for investors as the country’s economic fate is tied with the oil price movement. Norway derives over 20% of its national income from its fossil fuel production. As a result, the country’s securities were severely beaten down by last year’s oil rout (read: Oil Crash Hits These European ETFs Hard). 

However, with oil prices rebounding slowly, the Norwegian economy should pick up momentum. In mid June, Norges Bank slashed key interest rates to a record low and indicated further easing if required to ward off a recession following the oil collapse. As of now, the bank has reduced the country’s GDP growth projection to 1.25% and 1.50% for 2015 and 2016, respectively.

Investors should note that after a massive sell-off in the last one-year period (off over 26%), the pure-play Norway ETF, ENOR, is undervalued now, trading with a P/E (ttm) of 13 times compared  with the ’s 17 times valuation  of the broader market ETF Vanguard FTSE Europe ETF (VGK).  

This product provides targeted exposure to 52 Norwegian stocks by tracking the MSCI Norway IMI 25-50 Index. It has amassed $27.1 million in its asset base while volume is paltry, trading in less than 15,000 shares per day. As such, total cost of trading came in much higher than the expense ratio of 0.53%.

The fund is heavy on the top firm, Statoil, at 15.2% of the asset base and the top sector, energy at 31.6%. Other securities do not hold more than 12.20% share while other sectors make up for a nice mix in the portfolio. Rank on the ETF is upgraded from #3 to #2. The product is up 4.8% so far this year (as of June 23, 2015).

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SPDR-MSCI JQM (QJPN): ETF Research Reports
ISHARS-MS IRLND (EIRL): ETF Research Reports
ISHARS-MS NORWY (ENOR): ETF Research Reports
VANGD-FTSE EUR (VGK): ETF Research Reports
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