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Study Country Exposure in Your Europe ETFs

Dragged down by renewed worries surrounding Portugal’s finances, Europe exchange traded funds are suffering from another round of financial crisis woes as investors focus on the continent’s less stable peripheral nations.

The iShares MSCI EMU ETF (EZU) and the SPDR EURO STOXX 50 (FEZ) , which both focus on Eurozone countries, both declined about 1.6% Thursday. The WisdomTree Europe Hedged Equity Fund (HEDJ) , which also tracks Eurozone countries but hedges against a weakening euro currency, dipped 1.4%. [ETF Chart of the Day: Problems in Portugal]

Investors are drawing a line between crisis-hit peripheral Eurozone countries and those from stronger states in Northern Europe, writes Richard Barley for the Wall Street Journal.

The current problems concerning Espirito Santo Bank’s finances has renewed the default scare. Investors are viewing Greece and Portugal debt, which are still rated as speculative-grade, as high credit risk. [Lingering Financial Troubles Weighs On Portugal ETF]

Meanwhile, Ireland, Spain and Italy bonds oscillate between haven government debt and riskier corporate debt. Their yields and spread over German bunds have declined over the past year, but bargain hunters are no longer willing to take on further risk while safe-haven buyers won’t dive in during times of distress.

Looking at broad Europe ETFs, investors are still exposed to some of the more volatile states, namely Spain and Italy. EZU has a 11.5% weight toward Spain and 7.8% in Italy. FEZ allocations include Spain 13.2% and Italy 8.1%. HEDJ weights Spain 19.9% and Italy 2.1%. The broad Europe ETFs generally hold 50% or more over their weight in Germany and France, the two largest economies in the union.

With ETFs, investors can also pick and choose their exposure. For instance, investors can also find ETF options for the more stable developed Eurozone economies, including iShares MSCI Germany ETF (EWG) , iShares MSCI France ETF (EWQ) , iShares MSCI Belgium Capped ETF (EWK) , iShares MSCI Finland Capped ETF (EFNL) and iShares MSCI Austria Capped ETF (EWO) . While still lower due to their Eurozone association with Portugal, the northern Europe country-specific ETFs are revealing less volatility in the current risk-off environment.

For more information on the Eurozone, visit our Europe category.

Max Chen contributed to this article. Tom Lydon’s clients own shares of HEDJ.

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.