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The Allure Of The Austria ETF

ETF Professor

In economic terms, Austria does not get the attention that Germany, France or even Switzerland command. The same is true in the world of exchange traded funds, where the iShares MSCI Austria ETF (NYSE: EWO) often goes overlooked relative to other single-country Europe ETFs.

For example, the comparable Germany, France, Italy and Spain ETFs frequently attract more notoriety than EWO. The Austria fund, which turned 22 earlier this month, has an admirable $275 million in assets under management, but that is a fraction of the $4.34 billion found in the iShares MSCI Germany ETF (NYSE: EWG).

Lack of hoopla is not a determinant of returns. Year-to-date, EWO is up about 4 percent while EWG is lower by more than 2 percent. The rub is that all is not perfect in Austria.

Some Risks To Consider

When it comes to controversy and political volatility in the Eurozone, Greece, Italy and Spain often come to mind, but the environment in Austria is not entirely sanguine. In what sounds like something out of an episode of “Homeland,” “Austria's Interior Ministry allegedly may have breached due procedures during a recent raid on the domestic intelligence agency, deploying an unqualified special police unit and failing to inform other relevant authorities in advance,” said Markit.

The ETF has remained resilient in the face of controversy, jumping 3.5 percent over the past month.

Herbert Kickl, a senior member of the right-wing Austrian Freedom Party, “justified the raids based on information he said was provided to the Interior Ministry leadership as part of an investigation by the State Prosecutor for Economic and Corruption Crimes into the alleged abuse of power by BVT officials, three of whom subsequently were suspended,” said Markit.

Eyeing Volatility

Domestic controversies can affect equities in any market, developed or emerging. That is something to consider with EWO, as Austrian equities are historically more volatile than broader Eurozone benchmarks. For example, EWO's three-year standard deviation is just over 17 percent, compared to 14.5 percent for the MSCI EMU Index.

Additionally, EWO has sector-level concentration risk, as over one-third of its 25 holdings are financial services stocks. That is about double the ETF's second-largest sector weight, which is materials.

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