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Italy ETF Looks Bella


It is trading lower Monday, but the iShares MSCI Italy Capped ETF (EWI) has been a solid performer this year despite a palpable risk off environment.

Developed Europe ETFs have been comparatively less bad than their U.S. and emerging markets counterparts this year in terms of performance. Investors also have not been shy about allocating some of the cash they have pulled U.S. and developing world equity funds to European equivalents.

Cementing the notion that some investors are willing to embrace single-country risk with what was previously believed to be some of the Eurozone’s riskier fare, EWI pulled in $47 million just last week and has hauled in nearly $114 million since the start of the year. Said another way, nearly 12% of EWI’s $966.1 million in assets have come into the ETF just this year.

Although EWI’s 3.1% year-to-date ranks as a middling performance among the five PIIGS country-specific ETFs, the lone Italy fund has outpaced the comparable France, Germany and Switzerland ETFs. [Dash to Trash Helps PIIGS ETFs]

Italy, the Eurozone’s third-largest economy behind Germany and France, remains politically volatile compared to other developed nations and that political volatility has lent itself to economic challenges. On the upside “Italy seems to be heading out of a recessionary slump that has led to the highest level of unemployment in decades,” reports Gordon Sorlini for Gazetta del Sud.

Bolstering the medium-term bull case for EWI is news that Italy’s Economy Ministry is supporting plans to help the country’s banks rid themselves of bad debts, but the initiative will not require a bad bank needing Italian tax dollars or money from the European Union. That is important to EWI because financial services is the ETF’s largest sector weight at almost 33%, more than 1,200 basis higher than the allocation given to energy stocks.

On the other hand, investors should not gloss over the fact that analysts are far from enthusiastic in their assessments of banks in the PIIGS and have recently pared earnings estimates for those institutions.

There is good news. Italian companies could be bid higher due to lower emerging markets exposure than other European markets. Plus, Italian equities  are less expensive than German equivalents, though that is by virtue of the “resiliency premium” investors place on German stocks. [A Different Way to Profit With Germany ETFs]

Yields on 10-year Italian sovereign debt has fallen more than 115 basis points since June, according to Bloomberg data.

More good news, as Trade With Pete notes, EWI showing stout relative strength against the ultra-popular Vanguard FTSE Europe ETF (VGK) .

Chart Courtesy: TradeWithPete.com