PIIGS ETFs Oink Back to Life

August 26th at 7:30am by Tom Lydon

During the darkest days of the European sovereign debt crisis, Portugal, Ireland, Italy, Greece and Spain, also known as the PIIGS, were seen as the poster children for the region’s debt calamity. Amid sour economic data, bailout speculation and soaring bonds yields, the iShares MSCI Spain ETF (NYSEArca: EWP) and the iShares MSCI Italy ETF (NYSEArca: EWI) slid an average of 16% in 2011.

Things got so bad for Greece that since the start of this year, not one, but two index providers demoted the country to emerging markets from developed market status. Russell Investments did so in March with MSCI following suit in June. MSCI noted that developed markets “reflect continuous market improvements introduced by authorities in other countries over the years,” but that few of the those improvements are reflected in Greece. Greece fails to meet MSCI criteria on securities lending, short selling, lending facilities and transferability. [Another Index Provider Sends Greece to Emerging Markets Status]

Yet despite all the negative headwinds, PIIGS ETFs have been reborn, building on gains that started in 2012. Last year, EWI gained 15.4%, an impressive performance until measured against the 29.1% gained by the Global X FTSE Greece 20 ETF (NYSEArca: GREK). GREK has traded lower this year, but EWI and EWP are up 4.7% and 9.8%, respectively.

EWI has been bolstered by a new coalition government led by Premier Enrico Letta. Letta is reform-minded and has made bold promises to rejuvenate the Eurozone’s third-largest economy. In the past 90 days, the lone Italy ETF is up 6.1%. Earlier this year, valuations in the Italian stock market are lower than any other European nation, indicating significant room for growth. [Italian Renaissance: Italy ETF Soars]

There is no Portugal ETF, although Global X filed plans for one, but that has not stopped the PIIGS ETFs resurgence. The leader of the group this year has been the iShares MSCI Ireland Capped ETF (NYSEArca: EIRL), which has $85.9 million in assets. EIRL has soared 26.6% year-to-date. The four ETFs that track the PIIGS countries have all seen big jumps in assets, which have have collectively almost doubled to $1.3 billion from $700 million at the start of the year, reports Eric Balchunas for Bloomberg.

As Balchunas notes, the ETF with the largest allocation to Portugal is not even a fund that explicitly focuses on Europe. That ETF is the Guggenheim Timber Index ETF (NYSEArca: CUT), which has a 5% weight to Portugal.

iShares MSCI Italy ETF

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. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. 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.

Tickers