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Despite Grim Jobs Picture, Spain ETF Holds Up…Sort Of


On the surface, avoiding a single-country ETF that tracks a nation with severe unemployment would appear to be a good idea. Avoiding the iShares MSCI South Africa Index Fund (EZA) this year would have meant missing out on a loss of 20%. Dodging Egypt, where youth unemployment is double the already dismal national rate of 12%, has also been wise as the Market Vectors Egypt Index ETF (EGPT) has plunged 27%.

The iShares MSCI Spain Index (EWP) is proving to be an exception to the ETF-high-unemployment theory. Sort of. Year-to-date, EWP has only incurred a small loss and over the past week, the ETF has traded higher despite the fact that Spain has the Eurozone’s highest rate of joblessness. [Spain, Italy ETFs Holding Up Despite Drama]

Buyers may not be tripping over themselves to get involved with EWP, but they are not exactly running for the exits, either. EWP has hauled in $25.4 million in assets over the past two months, according to Index Universe data. Sliding bond yields have spur some interest in Spanish stocks, but this is still a market fraught with risk. Then again, the notion that high risk can lead to high reward may be what is keeping investors from dumping EWP. [Europe's Trash ETFs Become Treasure Troves]

EWP is down 2.6% in the past month. However, investors now know that the European Commission forecasts Spain’s debt load next year will be above the euro-area average for the first time in the currency’s history, reports Manuel Baigorri for Bloomberg.

Ratings agencies rate Spain’s sovereign debt barely above junk and Standard & Poor’s said unemployment there will remain “very high, at above 26 percent, at least until there is a sustained economic recovery,” according to Bloomberg.

Something else that the market knows about Spain is that bad loan levels recently ticked higher there. The record high of bad loans as a percentage of all loans in Spain was 11.2% seen in November 2012. That number was 10.87% in April, but the April tally was up from less than 10.5% in March.

That news comes after Spain has borrowed 41.3 billion euros to save its ailing banks. All of this is relevant to EWP because the ETF allocates over 40% of its weight to financial services names. Alone, Banco Santander (SAN) is EWP’s largest holding at weight of 19.2%. With EWP trading less than 7% below its 52-week, it might be fair to say the worst news has already been priced into Spanish stocks.

iShares MSCI Spain Index Fund

ETF Trends editorial team contributed to this post.


The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.