Equity: Poland - Total Market
The Poland Total Market segment has attracted little investor interest so far, as illustrated by the segment's low total AUM (less than $200M). In the ETF world, the early bird gets
“EPOLs view of the Polish market is very similar to our own” the AUM most of the time, but this segment is an exception. Although PLND by Market Vectors was first to market, the majority of the segment's shallow asset pool is invested in iShares' EPOL.
EPOL's view of the Polish market is very similar to our own: Its underlying index is only a slight variation of our benchmark, holding largely the same stocks in a near-perfect market-like composition. As one might expect, its size and sector bets are relatively muted. Investors should keep in mind that representative exposure in this market translates into high concentration risk and a portfolio heavy in financials.
PLND also attempts to provide neutral exposure to the Polish equities, but a wrinkle in its selection methodology takes it beyond the scope of the local market. The fund targets firms not only incorporated in Poland but also those that generate more than 50% of their revenues within Poland. This helps to explain the fund's inclusion of food-retail chain Jeronimo Martins, a company domiciled in Portugal. Although PLND tilts away from the market, it does so in a way that reduces concentration risk.
While EPOL and PLND charge similar expense ratios respectively, EPOL enjoys narrower spreads, higher trading volume and better block liquidity. Ultimately, EPOL's solid coverage of Polish equities earns it the coveted Analyst Pick designation. (Insight updated 03/22/17)
ETF.com Efficiency Insight
There's not much differentiating the two Poland ETFs in Efficiency. Both funds charge similar expense ratios and both have preserved their tax efficiency by avoiding capital gains
“The only red flag here is PLND's low asset base ” distributions.
PLND's tracking results are slightly better than EPOL's, though both funds managed to lag their indexes by less than their stated fees—a sign of effective management and securities lending revenues.
The only red flag here is that PLND's low asset base elevates its closure risk. Investors don't lose-out when an ETF closes, but will have to deal with the hassle of reinvestment and potential tax consequences. (Insight updated 03/22/17)
ETF.com Tradability Insight
While neither ETF will appeal to active traders, EPOL is the more liquid of the two. It sees far more volume and narrower spreads than its sole competitor.
Since neither fund has a
“neither ETF will appeal to active traders” hugely liquid secondary market, large investors looking to trade quickly may need to contact a liquidity provider to create or redeem ETF shares. Unfortunately market impact is a significant risk when creating or redeeming shares as the smallest securities in each portfolio are thinly traded. EPOL's portfolio reaches further down into small-caps, so it sees marginally worse underlying liquidity than PLND.
Investors can use limit orders to help contain trading costs but beware: iNAV will be most useful in the morning when both US markets (where the ETF trades) and Polish markets (where the underlying securities trade) are both open. Later in the afternoon when Polish markets are closed, inputs to the iNAV calculation may be stale and thus reducing its value as a reference for limit orders. (Insight updated 03/22/17)
ETF.com Fit Insight
Both funds Fit the Polish market quite well. They both hold less than 50 securities and exhibit modest sector tilts. There's a big methodology difference between the funds but,
“methodology differences could be a significant performance driver moving forward” currently, it only results in minor portfolio differences. EPOL only includes companies that are incorporated in Poland but PLND goes a step further to include companies that are incorporated elsewhere but earn a majority of their revenues within Poland. Currently, this only adds one company, Jeronimo Martins, to PLND's portfolio. Moving forward, it's hard to say whether this methodology difference will result in bigger exposure differences.
By sector, financials have a strong but market-like presence in both funds, while exposures to consumer cyclicals, technology, industrials and health care are minimal, but reflective. EPOL moves further down the market cap spectrum as it underweights large- and midcaps in favor of small- and micro-cap companies. Both funds see steep concentration which mirrors the Polish market.
Ultimately, the methodology difference between the two ETFs has a muted impact on their current portfolios but could be a significant driver moving forward. (Insight updated 03/22/17)