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Time for Poland ETFs?

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Poland managed to avoid the worst of the emerging markets meltdown due to its lower dependence on hot money as well as sound macroeconomic structure. Further, it is one of the few countries in Europe that has been able to weather the economic crisis in the eurozone. The country’s solid economic performance despite the weakness in many of its neighbors can be attributed to the internal strength of the economy, and significant reforms undertaken in the
recent past. (Poland ETF Investing 101).

However, the economy, which survived the four years of economic crisis, began to show new signs of weakness in 2012. Reduced government spending along with waning consumer confidence resulted in slower growth of the economy in 2012. Further, lower export demand attributable to the deepening crisis in the Euro-zone also dampened the growth of the economy to some extent.

But the outlook for the economy seems to have changed. With the eurozone economy reviving, exports from the region are once again strengthening thereby providing a strong support to the economy. Exports climbed 6% in the first six months of 2013 (4 Outperforming ETFs Leading Europe Higher).

Moreover, with the increase in export levels, current account deficit which was one of the major concerns for the economy seems to have reversed. After 13 years of current account deficit, the region recorded its first current account surplus. Also, domestic demand which was undermined by a weak economic outlook for the main trading partners of the country is now gaining strength.

Besides, improved retail sales and industrial production are instrumental in getting the economy back into shape.  Further evidence of the improving economic outlook going forward is Poland’s reduction in budget deficit and stabilizing government debt. The upgrade of the debt rating outlook by Fitch from stable to positive bears testimony to the same (European ETFs: A Surge in Popularity).

In fact, for 2013, the European Commission once again appears to be positive on the outlook for the Polish economy. It anticipates the economy to grow at the rate of 2% in 2013 and 3% in 2014. For the long term, the economy expects its growth rate to reach 4%.


Following a sharp slowdown in 2012, GDP growth is projected to pick up as investment and exports recover. Yet reduced consumer spending and joblessness in particular, remains a matter of concern for the Polish economy. Unemployment stands at 13%.

iShares MSCI Poland Investable Market Index Fund (EPOL)
Investors seeking a broad exposure to the Polish equity market might find EPOL an interesting pick (Poland ETFs Head-To-Head).

The product focuses largely on the large cap segment of the Polish market and holds 43 securities in its basket. The majority of holdings are classified as blend stocks from a style perspective.

The fund is heavily concentrated in its top 10 holdings with nearly 63.2% of the total assets. The top three companies combined to make up nearly 32.2% share of the portfolio.

From a sector perspective, the product has a certain tilt towards the financial sector which makes up 50% of the ETF. Materials and energy sectors also get double-digit allocation in the fund.

With an AUM of $312.4 million, the product charges 61 bps in fees per year from investors. The ETF has generated a negative year-to-date return of 5.31%, indicating that the economy had a slow start to the year.

Market Vectors Poland ETF (PLND)

The fund holds 30 securities in its basket, with a heavy focus on the top 10 holdings that account for about 60.4% of the assets. The top three companies take away more than 24.4% of the holdings.

In terms of holdings, financials consists of more than one-third of the holdings followed by double-digit weightings to energy (15.6%), utilities (12.1%) and materials (10.7%). The ETF has total assets of $27.5 million. The fund charges a fee of 61 basis points annually (Europe ETF Investing).PLND’s year-to-date loss stands at 2.23% .

Bottom Line

Poland remains a robust option when compared to many of its peers in the region as well as other emerging markets. Additionally, its projected growth rate is far in excess of what many other economies are seeing in the area, suggesting that Poland could still be a great option.

It is still one of the strongest performers in the European Union. The economic strength foreseen in the second half of 2013 could thus boost equities in the nation and make Poland a solid play.

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