Poland Bull Or Bear? ETFs To Play

by on December 10, 2012 | ETFs Mentioned:

For many investors, emerging market equities have long held their appeal as key diversifying agents and great potentials for growth and lucrative returns. When looking to add exposure to this corner of the market, most turn to the popular and perhaps more obvious choices, namely Brazil, Russia, India and China. But, of course, in the emerging market space, there are a wide array of options, and for those willing to stomach the risk, the potential rewards are certainly enticing [see Free Member Report: How To Pick The Right ETF Every Time].

Though not among investors’ top picks, one Eastern European nation has been flying under the radar for quite some time; Poland, one of the fastest growing economies that has taken major steps in recent years to solidify their global standing. As a member of the European Union, it is perhaps surprising that this emerging market has been able to withstand the onslaught of the eurozone’s debt crisis. And though there are certainly several red flags concerning the country’s recent slowdown in economic growth, Poland’s short but successful history may warrant a closer look.

Poland Takes A Stand

Many economists credit Poland’s resilience over the last few years to its relatively large and robust domestic market, as well as the governments push for improving the rather weak infrastructure. Last year, the country boasted a GDP growth rate of over 4% in each quarter. However, Poland’s economic growth has significantly reduced in 2012, to the tune of 1.4% in the third quarter, due to significant budget cuts made in order to trim the public deficit to below the EU’s 3% of GDP requirement [see also Euro Free Europe ETFdb Portfolio].

Despite recent hardships, Poland still maintains relatively strong industrial and service sectors, which account for the lion’s share of both domestic consumption and foreign exports. And thanks to the country’s tariff-free access to the European Union, trade has flourished in Poland. Its strong ties to the resilient Germany have also helped shield the country from the region’s debt crisis.

Perhaps the most critical outcome of Poland’s economic development over the years has been the surge in foreign direct investment, namely from the United States. In addition to favorable Polish laws, the country’s large domestic market, political stability and EU membership are the main reasons U.S. and foreign companies do business with Poland. According to the National Bank of Poland, foreign direct investment in 2011 topped $18.8 billion, an over 46% increase from the year prior [see also 7 Smallest Emerging Market Countries And The ETFs to Play Them].

Time To Buy?

Though Poland’s future economic performance greatly depends on the country’s ability to address its issues, namely infrastructural setbacks, high levels of unemployment and public debt, investors may still find this corner of the market rather appealing. And thanks to the rapidly developing ETF industry, there are now numerous ways to gain exposure to this emerging market economy. Whether you’re a Poland bull or bear, we outline three ETFs for investors wishing to make a play on the promising nation [see also December Edition Of Edge Now Available]:

  • MSCI Poland Investable Market Index Fund (EPOL): This ETF is by far the most popular option for targeted exposure to Poland. EPOL has amassed more than $145 million in assets since inception in 2010, and currently trades nearly 100,000 times a day. The portfolio is comprised of roughly 47 individual holdings, though financial services equities make up more than 40% of total assets. Year-to-date, EPOL is 29.15% and currently boasts an annual dividend yield of 4.73%.
  • Market Vectors Poland ETF (PLND): Similar to EPOL, this ETF also maintains a rather shallow portfolio that is heavily biased towards the financial sector. PLND, however, does feature meaningful exposure to basic materials and energy equities. And though the fund is relatively top-heavy with nearly 60% of total assets allocated to the top ten holdings, its highest weighting to an individual security is only about 8%, while EPOL’s top holding receives a nearly 13% weighting [see also ETFs To Play 9 Markets In Limbo].
  • MSCI Emerging Markets Eastern Europe Index Fund (ESR): For those looking for more diversified exposure, iShare’s ESR may be a more appealing option as the fund is designed to measure the performance of several Eastern European nations. Though Russian stocks account for the majority of holdings, Polish equities make up nearly 18% of total assets.

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Disclosure: No positions at time of writing.