An exchange traded fund (ETF) that tracks the European financial sector is near its 2011 high even though Portugal last week requested a bailout from the European Union.

However, funds like iShares MSCI Europe Financial Sector Index Fund (NYSEArca: EUFN) could come under pressure if sovereign-bond worries flare.

iShares MSCI Europe Financial Sector profile:

  • EUFN tries to reflect the performance of the MSCI Europe Financials Index. The Fund has an expense ratio of 0.48% and has 107 holdings.
  • Sector allocations include: Banks 53.44%, Insurance 22.67%, Diversified Financials 19.74% and Real Estate 3.99%.
  • Country allocations include: U.K 32.44%, Switzerland 12.58%, France 11.94%, Germany 10.32%, Spain 9.99%, Sweden 6.25%, Italy 6.12%, Netherlands 3.51%, Belgium 1.4%.

The Portuguese government has stubbornly declined austerity measures but it could be forced into a bailout plan if its finances are not straightened out.

Portugal’s parliament has rejected the new government austerity plan, which pushed Prime Minister José Sócrates to resign his position as the government’s borrowing costs rise.

The EU will have enough funds to handle any financing needs Portugal could face in the next couple of years. However, Spain, the eurozone’s fourth-largest economy, is garnering greater scrutiny over its weak banking system. [Europe ETFs: Portugal Rejects Austerity Measures.]

S&P recently downgraded Portuguese sovereign debt to BBB (two ratings away from “junk”) and Fitch issued a downgrade to A-. [Think Twice: Portugal May Be Allocated In Your ETF.]

iShares MSCI Europe Financial Sector

For more information on Europe, visit our Europe 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.

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