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Europe’s Trash ETFs Become Treasure Troves


If a poll had been conducted among investors at the start of the year regarding Europe ETF choices for 2013, chances are popular responses would have included a diverse fund such as the Vanguard FTSE Europe ETF (VGK) or the iShares MSCI Germany Index Fund (EWG) , the biggest ETF tracking the Eurozone’s largest economy.

Some investors may have opted for the perceived safety of non-Eurozone ETFs such as the iShares MSCI Sweden Index Fund (EWD) . All three have been decent performers this year, posting gains of 8.5%, 6.4% and 11.5%, respectively. [Europe ETFs Hold Up Despite, Spain, Italy Drama]

Nice numbers to be sure, but the real jewels of the Europe ETF space are also the most controversial of the bunch. At least that has been the case over the past month as constituent countries in the infamous PIIGS acronym have seen their corresponding ETFs take off. For now, there is no Portugal ETF available and investors may not need it. Not after the iShares MSCI Italy Index Fund’s (EWI) 9%  jump since April 22 to shake off a dismal start to the year. [ETF Performance Report: February 2013]

EWI’s fortunes have been bolstered by Italy’s new prime minister, Enrico Letta, who has made the bold promise of turning the Eurozone’s third-largest economy around in 18 months reforming electoral law, suspending a property tax, cutting ministers’ salaries and pushing for the reversal of harsh austerity measures, reported Trang Ho for Investor’s Business Daily.

While noticeably more volatile than broader Europe ETFs such as the iShares MSCI EMU Index Fund (EZU) , EWI trades at a valuation discount to that ETF while sporting a lower price-to-book ratio than the iShares MSCI Switzerland Capped Index Fund (EWL).

Despite an unemployment rate north of 20%, Spain has gotten in on the rebound act as well. Sliding bond yields have lifted the iShares MSCI Spain Index Fund (EWP) over the past month as the ETF is up more than 4% in that time. Earlier in May, Italian and Spanish 10-year yields hit 2-1/2 year lows of 3.68 and 3.95 percent, respectively, Reuters reported. That is a far cry from the 7%+ seen during some of the darkest days of Europe’s sovereign debt crisis.

The true gem of the Europe ETF litter over the past 30 days has been the Global X FTSE Greece 20 ETF (GREK) . Back from the brink of expulsion from the Eurozone and a demotion by one index provider to emerging markets status earlier this year, Greek equities are in rally mode and that has helped GREK surge about 20 percent in the past month. [Bloomberg data.

A double in the span of less than a year might imply GREK and Greek stocks do not have much further to rally, but consider this: The ASE traded above 4,000 less than five years ago and over 6,000 in 1999.

The risk is Greece is far from a sanguine market. The country is into a sixth year of recession and job growth is expected to be tepid for the foreseeable future. However, some progress is being as the European Commission is forecasting 0.6% GDP growth for Greece in 2014 and Fitch Ratings recently upgraded Greece’s credit rating to a higher part of junk territory. [Greece ETF Up 20% Since March; Fitch Lifts Credit Rating]

ETF Trends editorial team contributed to this story.

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.