Is a Great Year Ahead for the Spain ETF?

Spain, as one of the largest of the so-called PIIGS members, has been an in-focus economy for quite some time. This is especially true given the country’s extreme level of unemployment, and troubles in terms of enacting measures to get the budget situation under control.

This poor combination led to huge losses for the Spanish equity market, and it left many feeling pretty pessimistic on the country’s future. However, some recent trading and solid data may signal an end to the malaise for the in focus nation (see all the European Equity ETFs here).

First, investors have seen a broad turn regarding the outlook for European markets in general. The continent managed to rebound in the tail end of 2013, and some now believe that the debt situation in many of the more troubled members is now under control.

And for Spain in particular, the country’s service sector appears to be rebounding strongly, at least if you look at the most recent service PMI report out of the nation. In this report, activity rose to 54.2 from 51.7, marking the sharpest rise since before the Great Recession began.

Not only is this figure robust, but also represents some level of improvement when compared to other large economies in Europe as well. For example, both Italy and France saw sluggishness in their reports, suggesting that Spain is starting to outperform, and is actually looking pretty positive from this front (See 3 European ETFs Leading the Recovery).

Market Impact

Thanks to this report, the main way for U.S. investors to target Spanish investments, the iShares MSCI Spain Capped ETF (EWP), rose by about 1.7% on the day. Volume was also elevated, and the Spain ETF was doing far better than broad Europe ETFs such as VGK or EZU which were up about 0.35% on the day.

This move higher also continues the Spain ETF’s resurgence as of late, as the fund is now up roughly 33% in the past six month time period. And, thanks to this recent bout of strength, the fund is actually in positive territory for the trailing five year time frame too, suggesting that Spain might finally be on relatively solid footing once more.

Given this solid trading and the more robust data coming out of the nation, some investors might want to consider a Spain ETF play in 2014. For these intrepid investors, we have highlighted some of the key details regarding the Spain ETF below:

Spain ETF in Focus

EWP tracks the MSCI Spain 25/50 Index, following a basket of about two dozen Spanish stocks. Since there are so few companies in the fund, concentration risks are a bit of an issue, especially considering financials take up over 45% of the portfolio (see all the Top Ranked ETFs here).

Beyond that huge allocation though, the fund does a decent job spreading assets around. Utilities, telecoms, and industrials all receive at least 10% of the fund, and three more sectors get at least 5% of assets.

In terms of top individual holdings, Banco Santander, BBVA, and Telefonica take the top three spots. And, all three of these receive at least 12% of assets, so there is definitely some concentration in these names.

Volume is pretty solid for this fund, as are assets under management, so bid ask spreads look to be minimal in this product. In fact, more than half a million shares move hands daily, and close to $900 million is invested in EWP.

Bottom Line

The Spanish stock market definitely has some momentum, as evidenced by its recent performance and some decent data figures coming out of the nation. The nation’s ETF is actually now in positive territory for the trailing five year period, meaning it has recouped some of its losses from the difficult time (see Why PIIGS ETFs Are Outperforming).

Spain still has a ways to go in order to get back to all time high levels, and it also has a severe problem with unemployment and debt. Given this, it could still be a very rocky road for the nation and its stocks.

With that being said, it is hard not to have some optimism over the Spanish economy right now. Data has come back strong and figures are better than many other European nations, suggesting that Spain might be back on track here in the New Year.

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