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Euro Zone Recovery Puts Ireland ETF in Focus

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Recovery in the Euro zone, which emerged from the 18-month long recession last year, continues to stay on track to recovery. Its economy grew at the pace of 0.3% in the last quarter of 2013, as against 0.1% in the preceding quarter.

Consumer confidence as well as economic sentiment in the region is picking up, indicating a brighter outlook. Two countries within the Euro zone have already opted to exit the bailout program with Spain’s exit last month.

However, Ireland was the first Euro area nation to have been able to come out of the three-year bailout program in December last year (read: Is This a Better Europe ETF?).

The Irish economy is currently on a growth trajectory given ongoing fiscal consolidation, reviving domestic demand, an improving housing market, rising exports and a recovering banking sector.

Ireland in Focus

The economy expanded 1.5% in the third quarter of 2013. As per the European Commission, the Irish GDP will expand 0.3% in 2013, 1.7% in 2014 and 2.5% in 2015, signaling that the country’s growth is well on course.

Though still high, the unemployment rate is exhibiting a downward trend. The unemployment rate has fallen to 12.4% in January 2014 from 13.9% in January 2013. Also, it is expected to come down to 12.3% for the full-year 2014 and 11.7% in 2015.

Furthermore, European Central Bank’s President Mario Draghi has vowed to use all means to fight the problem of falling inflation. It is expected to keep an accommodative monetary policy until inflation rises to ECB’s target level of just under 2% for the euro region (read: Poland: A Better Eastern Europe ETF?).

Moreover, rating agency Standard & Poor’s has reaffirmed Ireland’s long-term sovereign rating as positive in December last year. Also, the agency might raise its rating, if the Irish economy manages to reduce its debt burden.

Given the improving fundamentals for the Irish economy, a look at the top ranked ETF in the space could be the way to target the best of the segment with lower levels of risk.

Top Ranked Ireland ETF in Focus

The Zacks ETF Rank provides a recommendation for the ETF in the context of our outlook for the underlying industry, sector, style box or asset class (read: Zacks ETF Rank Guide). Our proprietary methodology also takes into account the risk preferences of investors as well.

The aim of our models is to select the best ETFs within each risk category. We assign each ETF one of five ranks within each risk bucket. Thus, the Zacks ETF Rank reflects the expected return of an ETF relative to other products with a similar level of risk.

For investors seeking to apply this methodology to their portfolio in the European equities space, we have taken a closer look at the top ranked EIRL. This ETF has a Zacks ETF Rank of 2 or ‘Buy’ (read: all the Top Ranked ETFs) and is detailed below.

EIRL in Focus

Launched in May 2010, the fund manages an asset base of $142.8 million and tracks the performance of the Irish equity market. The fund seeks to match the performance and yield of MSCI All Ireland Capped Index before fees and expenses.

EIRL holds a small basket of 24 stocks and is heavily concentrated in its top ten holdings (73.89%). The heavy concentration is primarily due to the fund’s top holding -- Crh Plc -- which alone comprises a little under one-fourth of the total fund assets. The other two funds in the top three holdings are Kerry Group PLC-A (9.59%) and Bank of Ireland (7.92%).         

Sector-wise, Materials (27.8%) and Consumer Staples (22.94%) combine to make up 50% of the total fund assets. However, the fund also has exposure to the Industrials (22.62%), Financials (11.98%), Healthcare (9.95%) and Consumer Discretionary (4.23%) sectors.

The fund has returned a stellar 44.72% in the last one year, delivering the best performance among all European equities. Also, it has added a solid 9.9% in the year-to-date time frame.

The fund charges 49 basis points as fees to investors and has a dividend yield of 1.54%.

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