Portugal ETF Gets A Strong Start

portugalGlobal X added another product to its lineup on November 13 with its Portugal ETF. This debut was well received by the market as the country is slowly exiting its bailout program. Further optimism is being laid by the European economy, which is reviving on reduced debt worries, strong growth in some key members and firmer currency.

Investors should note that the PIIGS (Portugal, Ireland, Italy, Greece and Spain) countries, often considered the weakest members in the Euro zone, are showing an impressive turnaround and are leading the broad European recovery.

Better Portugal Economy Trends

After struggling for more than two years, the economic situation is improving in Portugal aided by two consecutive quarters of growth, declining unemployment, lower trade deficit and rising consumer confidence. The economy grew 0.2% in the third quarter followed by 1.1% in the second, while unemployment declined to 15.6% from 16.4% in the third quarter.

Portugal has initiated a sovereign debt swap in order to fully exit from the €78 billion European Union-International Monetary Fund bailout rescue program in June next year. The country exchanged €6.64 billion ($9 billion) in bonds maturing in 2014 and 2015 for notes due in 2017 and 2018. This move will reduce the debt repayment in the country and would spread an air of confidence over the nation’s future.

In addition, rising tourism and growing exports are driving growth in the country after years of bailout austerity. Given a bullish outlook and strengthening fundamentals, the Portuguese government now expects the economy to shrink 1.8% this year compared to the previous outlook of a 2.3% decline, and it raised its 2014 growth outlook from 0.6% to 0.8%.

This bout of optimism and bullish trend helped the new Portugal ETF to enjoy the first mover advantage in the relatively small nation of Portugal in this short span (read: Why PIIGS ETFs Are Outperforming).

This is especially true given that the Global X FTSE Portugal 20 ETF (NYSEARCA:PGAL) added over 4% since its inception and easily outpaced the broader American and European funds by wide margins. This suggests the strong positive momentum in the outlook of this debt-ridden country.

Portugal ETF in Focus

The fund has garnered a small amount of investor interest by accumulating about $1.6 million in AUM in its first month; though volume is light. The ETF charges little higher in fees per year of 60 bps.

The product tracks the performance of the FTSE Portugal 20 Index, holding 20 Portuguese stocks in its basket. The index focuses on the biggest stocks in the nation (or those that primarily derive their revenues from the country), screening by liquidity and weighting by modified free-float market capitalization.

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