GREK Global X MSCI Greece ETF

Although debt problems remain across Europe, many securities in the region have performed quite well this year. In fact, broad ETFs tracking the region such as VGK or EZU have added more than 14% YTD, while they have also outperformed the S&P 500 in the past six months.

Worries over so-called PIIGS nations (Portugal, Ireland, Italy, Greece, and Spain) have significantly declined, and stocks in these nations have actually led the way higher as of late. Due to this sudden bout of optimism and the generally bullish trend, now appears to be a perfect time for Global X to have the debut for its latest international ETF, this time targeting the market of Portugal (see all the European ETFs here).

Portugal ETF in Focus

This will actually mark the first time that an ETF issuer has launched a single country fund targeting the relatively small nation of Portugal. The product will trade under the name of the FTSE Portugal 20 ETF—PGAL, and as you might have been able to guess by the name, will hold 20 Portuguese stocks in its basket.

This 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. For this exposure, the fund will charge investors 61 basis points a year in fees (read Play a Resurgent Europe with These ETFs).

In terms of the ETF’s holdings, utilities (26.2%), consumer services (22.9%), and financials (15.5%), dominate the basket. However, energy (14.4%) and materials (10.8%) also receive big weights, giving the fund a relatively well spread out profile despite the fact it only has 20 stocks in its basket.

The fund does have a bit of a concentration risk from a single stock look though, as three companies make up at least 13.3% of assets, including EDP at just under 20%. Still, with a heavy focus on utilities and consumer stocks, this product may not be as volatile as it initially appears.

How does it fit in a portfolio?

PGAL could be an interesting pick for investors who believe that the European debt story has seen its worst days, and that better trading is still ahead. If this is your viewpoint, then a look to a Portugal ETF seems like a solid pick, as it could have more upside than the larger PIIGS markets like Spain and Italy which always seem to have better bailout prospects anyway (see Why the PIIGS ETFs Are Outperforming).

This fund may not be appropriate for investors who are worried about Europe growing out of its debt issues, or for those who think that the EU will need to make an example out of some of the smaller markets. Furthermore, the country is still battling through austerity measures, so growth could be difficult to come by in the near term.

ETF Competition and Bottom Line

This represents the first time that U.S. investors have a product that exclusively focuses in on the Portuguese market in ETF form. As such, there are really no direct competitors for this product, though this does complete the PIIGS ETF list, as the other four nations in the group—Ireland (EIRL), Italy (EWI), Greece (GREK), and Spain (EWP)—already had ETFs of their own (See Europe ETF Investing 101).

The group has seen very mixed success in terms of attracting assets, as EWI and EWP have, respectively, $850 million and $790 million in AUM, while GREK and EIRL have seen just a fraction of that, though both are likely profitable for their issuers. EIRL has actually cracked the $100 million under management mark, while GREK is right behind, possessing over $90 million.

This is a pretty solid level of interest all around, and especially so for Ireland and Greece, as both of these ETFs also target small countries and have less than 30 securities in their baskets, much like the new Portugal fund.

Given this, the new Portugal ETF might be able to attract a decent following, though it will definitely require a stable Europe and successful navigation through austerity for this product to outperform some of its peers in the region.   

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ISHARS-MS IRLND (EIRL): ETF Research Reports
 
ISHARS-ITALY (EWI): ETF Research Reports
 
ISHARS-SPAIN (EWP): ETF Research Reports
 
GLBL-X/F GREC20 (GREK): ETF Research Reports
 
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