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S&P Upgrades Ireland Outlook: Time for the Irish ETF?

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Ireland is in a group of countries which have been widely impacted by the financial crisis, with the nation's fortunes plunging since the global recession began in 2008. Yet, thanks to the early austerity measures taken by the Irish government, the country has managed to bounce back sooner than others in the region.

The year started on a good note for the Irish economy as the country has shown signs of recovery early this year with strong fiscal consolidation, reviving domestic demand and banking reforms. In fact, in June, the Ireland Stock market (ISEQ) had a positive performance as the index rallied 154 points or 3.98% during the month.

Irish Economy Outlook                                                          

Irish economy is currently growing at a decent clip. An improvement in the domestic and global markets might help revamp the country’s growth by 2015. In the first 3 months of the year the GNP expanded by 2.9%, though the GDP slipped back to 0.6%. The country may regain its investment grade rating if it continues to maintain its high institutional strength in the second half.

Given the improving trends, the Irish market performance has been quite impressive so far this year, not only when compared to other high debt countries in Europe but also when juxtaposed against strong markets (read Is the Ireland ETF No Longer a PIIGS Member?).

A boost to investors

The sluggish economy outlook did not sway investors from the stock market. The ISEQ is up by 18.07% as of this year through July 19, 2013. Further, Standard & Poor’s (S&P) has upgraded the rating for the country’s outlook from stable to positive, suggesting an improved future for the nation.

In fact, the nation is reported to be 6 months ahead in its schedule to exit from 67.5 billion euro ($88 billion) bailout program, linked to the rise in rating.

S&P stated that Ireland could "over-achieve its fiscal targets and reduce its government debt faster than we currently expect," adding that the country's economic recovery is underway (also read 3 Forgotten Ways to Play Europe with ETFs).

The Irish bonds rebounded 6.9% this year through July 15, according to Bloomberg World Bond Indexes. Furthermore, Moody’s Investor Service has also favored the country’s outlook.

Investors should note that Ireland is rapidly trying to emerge as a stronger nation among the other PIIGS members. The nation is expected to post the third highest GDP growth in the Euro-zone this year and in the next. The IMF projects Ireland's economy to grow 1.1% this year, 2.2% next year and 2.7% in 2015. (See 3 European ETFs Holding Their Ground)

ETF Angle

For investors who seek to invest in the country via a diversified fund, currently the only option available is the iShares MSCI Ireland Capped Investable Market Index Fund (EIRL - Free Report) ).

EIRL tracks the MSCI Ireland Investable Market 25/50 Index. The ETF has added roughly 20% on a year-to-date basis.

The fund holds 21 securities in the basket, with greater allocation going to the top 10 firms. CRH Plc, Kerry Group and ELAN Corp hold the top three positions with a combined share of 47%. From a sector perspective, the product puts a heavy focus on three sectors – materials, industrials and consumer staples – each making up for at least 24% of assets.

The fund has a heavy focus on mid-cap stocks (62%), followed by large-caps (27%) and then small-caps (10%). This Irish fund has amassed $65.6 million in its asset base while charging 50 bps in fees per year from investors.

The Bottom Line

The economy of Ireland is currently in a growing phase. While the Euro zone crisis remains unresolved, European markets are still showing some sort of resilience after relentless efforts by policymakers across the Atlantic (read: Can This High Yielding European ETF Surge Higher?).

As figures suggest, EIRL has been ignored by many potential investors. Judging by performance, the fund has shown some great performance which is proved numerically.

Apart from strong returns, the fund has also provided a decent yield of 1.26%. However, with improving conditions in Ireland the space will soon attract a greater number of investors.

Still, it is important to remember that while the short-term picture for Ireland is favorable, there are plenty of questions swirling over the nation in the long term. For this reason, and the ETF’s relatively wide bid ask spreads, we are still keeping a Zacks ETF Rank #4 on this fund for the time being, though the country’s progress has certainly been encouraging lately.

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