Should Investors Bet On The Portugal ETF? [Vanguard FTSE Europe ETF, iShares S&P Europe 350 Index (ETF)]

Portugal’s borrowing costs plunged to the lowest level since the start of Euro zone debt crisis in 2009. As per data from Bloomberg, the average yield investors demand to hold bonds from Greece, Ireland, Italy, Portugal and Spain fell to 161 basis points, the lowest since April 2010. This means investors are gaining faith on the region’s most distressed asset class.

As per the European Commission, Portugal’s gross public debt as a percentage of GDP will decline to 126.7% in 2014 and 125.7% in 2015 from the high point of 127.8% recorded in 2013. Real GDP growth will likely be 0.8% for 2014 and 1.5% for 2015 indicating marked improvement from the decline of 1.8% in 2013 and 3.2% in 2012.

Net exports are expected to be the source of the potential growth while domestic demand is likely to contribute meaningfully in 2014. However, the joblessness rate is not expected drop before 2015.

Portugal ETF in Focus

Despite the solid start, the fund hasn’t garnered a whole lot of investor interest by accumulating about $3 million in AUM since inception. The ETF charges a little higher in fees per year of 61 bps.

The product looks to track 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 market capitalization.

The fund is heavily concentrated on the top firm – Energias De Portugal – at about18% of total assets, closely followed by Gulp Energia and Jeronimo Martins at 14% and 12.5% respectively.From a sector perspective, utilities and consumer services dominate the fund’s portfolio at nearly 26% and 23%, respectively, indicating that the ETF might not be too volatile due to higher allocations to defensive sectors (see: all the European ETFs here).

Bottom Line

With European stocks roaming around at six-year high levels, major banking organizations have predicted that the limelight will be particularly on Europe in 2014 pushing aside the U.S. equities.

Amid such a bullish backdrop, risk-tolerant investors might bet on the Portugal ETF taking a cue from its all-important improved debt market and consider PGAL as a strong play this year.

This article is brought to you courtesy of Eric Dutram.
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