ETF Spotlight: Single-Country Funds
June 18th, 2012 at 7:00am by Tom Lydon
Income seekers have delved into the markets in search of attractive payouts during this low-yield environment. Some have found enticing yields in country-specific exchange traded funds; however, potential investors should not let yields blind them and consider the underlying risks associated with the country in question.
Roger Nusbaum of The Street points to a recent Wall Street Journal column that focused on single-country ETFs with “safe” dividend yields greater than 4%.
Specifically, countries like Australia, New Zealand, Norway and Poland:
- iShares MSCI Australia Index Fund ETF (NYSEArca: EWA): yield 5.24%
- WisdomTree Australia Dividend Fund ETF (NYSEArca: AUSE): yield 6.25%
- iShares MSCI New Zealand Investable Market Index Fund ETF (NYSEArca: ENZL): yield
- Global X FTSE Norway 30 ETF (NYSEArca: NORW): yield 6.34%
- iShares MSCI Norway Cppd Investable Mkt (NYSEArca: ENOR): yield 4.72%
- iShares MSCI Poland Investable Market Index Fund ETF (NYSEArca: EPOL): yield 5.99%
- Market Vectors Poland ETF (NYSEArca: PLND): yield 4.56%
While the yields look attractive, investors should consider country and regional risks, such as a country’s fiscal health, along with the actual make up of the funds, like holdings and sector weightings.
For instance, the iShares MSCI Spain Index (NYSEArca: EWP) has an impressive 13.76% yield, but investors would probably not hold this over a long-term period for obvious reasons concerning volatility and the country’s fiscal health. [European ETF Market Suffers Amid Debt Crisis]
Poland’s close proximity to the troubled Eurozone will also weigh on its export industry, while Australia is closely tied to trade with China.
New Zealand has a large trade deficit since it relies heavily on imports for its basic goods. Additionally, the country also has a heavy emphasis on its telecom sector.
Norway, though, has no debt and enjoys a budget surplus. The country is leveraged to the energy market, so short-term volatility in crude oil could affect its market.
Moreover, most emerging market and international single-country ETFs have a heavy emphasis on the financials sector. When holding onto these ETFs, an investors should be wary of becoming overexposed to a single sector.
For more information country-specific ETFs, visit our global ETFs category.
Max Chen contributed to this article.
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.