The iShares MSCI Spain Capped ETF (NYSEArca: EWP), the largest exchange traded fund tracking stocks in the Eurozone’s fourth-largest economy, is off 4% year-to-date. That is a middling performance among the ETFs tracking the PIIGS economies, but EWP and rival Spain ETFs have other concerns.
Recent momentum built up by EWP and Spanish stocks is seen as vulnerable to the country’s increasingly contentious political environment. Last year, Spain and its financial markets dealt with the issue of Catalonian independence as Catalonia makes up almost one-fifth of Spain’s gross domestic product and one-quarter of exports.
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Investors can also consider the factor-based SPDR MSCI Spain Quality Mix ETF (NYSEArca: QESP) as an alternative to the cap-weighted EWP. The quality factor “captures excess returns to stocks that are characterized by low debt, stable earnings growth and other ‘quality’ metrics,” according to MSCI.
QESP is also heavily exposed to the financial services sector with a weight of 33.5% to that group. The factor-based Spain ETF also offers some leverage to the recovering Spanish consumer with over 10% of its weight going to consumer sectors.
“While Spain has largely shrugged off political uncertainty so far, the nine-month deadlock — along with a weaker global backdrop — could be starting to hurt momentum as the next government’s to-do list grows,” reports Maria Tadeo for Bloomberg.