Time To Take A Closer Look At The Irish ETF?

by on September 12, 2011 | ETFs Mentioned:

Not too long ago, the Irish economy was the envy of much of the developed world. The country quickly developed a knowledge-based economy and saw high levels of growth for a number of years, thanks in large part to its ultra-low corporate tax rate which is at just 12.5%. Yet, the boom didn’t last and the country was hit especially hard by the financial crisis of 2008, becoming the first nation in the EU to officially fall into a recession. After a series of bank bailouts and a crash in the once-dynamic Irish property market, the national economy was pretty much devastated and it remains one of the most indebted countries in the world. With that being said, recent developments in the country suggest that maybe, Ireland is finally exiting its nearly three year slump.

Despite the severe challenges facing Ireland, the country has managed to slowly reduce its deficit as a percentage of GDP to a more manageable level. In fact, according to a recent report from the EU/IMF, the deficit is projected to come in below the target rate of 10.5% this and is well on track to reach the goal of 3% by 2015. Furthermore, the country is now expected to see its economy grow at 0.6% this year and 1.9% in 2012. While that might not sound like a lot, it does represent the first time since the crisis began that the Irish economy has seen growth, suggesting to some that the economy may have bottomed out for the time being [Highlighting The PIIGS ETFs].

Some investors are also pointing to recent performances in the equity market for more reason to be somewhat optimistic on the Irish economy. The main fund tracking Ireland has lost 13.1% so far this year, a figure that is far better than many of the broader European ETFs. For example, VGK has fallen by 16% in the same time period while EZU, which is only focused on EMU countries, has seen its value decline by nearly 23% in comparison. Furthermore, investors should also note that other national ETFs, such as those tracking Italy and Austria, have seen their shares decline by nearly 30% in the time frame. Thanks to these heavy losses in the other markets of Europe, some believe that the worst has hit Ireland and that the focus has shifted to countries such as Spain and Italy instead. As a result, Ireland, which could still be significantly hurt by more European turmoil, could be an outperformer in the region, especially if its economy continues to slowly come back on track [see The Case For The Ireland ETF].

Ireland ETF In Focus

The main way to play the Irish economy in exchange traded form is with the iShares MSCI Ireland Capped Investable Market Index Fund (EIRL). The fund tracks the MSCI Ireland Investable Market 25/50 Index which is a free-float adjusted market capitalization weighted index designed to measure the performance of equity securities in the top 99% by market capitalization of the equity securities listed on stock exchanges in Ireland. Current top sectors include basic materials and consumer staples which make up about 25% of the portfolio each. Meanwhile, industrials and health care also take up 15% each as well. 

In terms of recent performance, the Irish ETF has still seen significant volatility and is heavily correlated to other European markets. EIRL has fallen by roughly 4.4% over the past month, but once again, this is far better than EZU which has declined by nearly 13.1% in the same period. Investors should also note that the dividend yield for EIRL is close to 2.2% while the PE is 13.65; these factors suggest that EIRL might make for a decent value for some investors who are looking for cheap securities in Europe but are still wary of the broad European crisis. So, while the disaster in Europe may be far from over, Ireland is one of the few PIIGS that may starting to see the light at the end of the tunnel and could be worth a closer look from investors with an ultra-high risk tolerance [read Ireland ETF To Thrive On Weak Euro].


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Disclosure: Long VGK.