Equity: Spain - Total Market
For 18 years, iShares' EWP was the only ETF option for targeted exposure to the Spanish equity market. That changed in June 2014 with the launch of QESP, from State Street. QESP deeply
“Most investors will be better off holding a total-market Europe fund” undercut EWP's fee, and it tracks a collection of three factor indexes in contrast to EWP's highly-concentrated, plain-vanilla index.
That said, QESP hasn't attracted much capital and sees truly anemic liquidity. Retail investors who aren't completely sold on the fund's "smart beta" strategy are advised to avoid it until the trading situation improves. EWP has a massive asset base and trades millions of dollars' worth of shares every day, at tight spreads.
While EWP dominates this segment and earns our Analyst Pick ribbon, it isn't without problems. The fund is expensive and doesn't track all that well. Further, it provides extremely top-heavy exposure to just a handful of Spanish companies. Most investors will be better off holding a low-cost, total-market Europe fund, rather than trying to slice and dice along country lines.
There are also now two currency-hedged options for getting exposure to Spanish equity. Both HEWP and DBSP track variants of EWP's index, so they compete directly. DBSP is the cheaper of the two, but HEWP gets its equity exposure by holding EWP, which could aid liquidity. (Insight updated 06/23/17)
ETF.com Efficiency Insight
EWP is a part of iShares' MSCI single-country suite of ETFs which launched in 1996, collectively taking third-place for the oldest ETF currently trading. With nearly two decades of
“EWP isn't going anywhere” trading history and over $1B in assets it's a safe bet that the fund isn't going anywhere. That said, EWP isn't particularly Efficient. It charges a steep fee (Total Europe funds can be had for as little as a quarter the cost), and has historically lagged its index by even more than that.
HEWP offers currency-hedged exposure to EWP's index for just a few bps more. In fact, the fund literally holds EWP for its underlying equity exposure. We expect poor tracking statistics from HEWP, but this is just an illusory issue caused by a timing mismatch (EWP continues trading when Spanish markets are closed). The fund launched in July 2015, and already has a significant asset base.
Competitor QESP, from State Street, deeply undercuts EWP's fee. The fund only launched in June 2014, so we don't have enough performance history to evaluate how well it tracks its index, but EWP certainly sets a low bar. Unfortunately, QESP hasn't caught on and we see high closure risk.
Finally, Deutsche's DBSP, launched in August 2015, undercuts EWP's fee by a few bps. DBSP offers currency-hedged exposure to a variant of EWP's index, but unlike HEWP, it holds the underlying stocks directly and so should have more accurate tracking statistics. DBSP must gather assets if it's to succeed. (Insight updated 06/23/17)
ETF.com Tradability Insight
There's no question that EWP dominates the segment in liquidity. The fund's massive asset base supports multiple-creation-unit trades every day, at razor thin spreads. Investors
“EWP dominates” and traders of all stripes and sizes should have no problem getting in and out fairly.
The other three funds in the segment barely trade at all. Quoted spreads look reasonable, but thin order books for these funds means that a poorly-timed market order could prove expensive. Use limit orders and proceed with extreme caution. Institutional investors trading whole blocks will have a much easier time of it.
Note that HEWP scores poorly in block liquidity because it uses EWP as its underlying. However, because EWP itself gets a perfect score in block liquidity, block trades in HEWP are likely to be cheap and easy when working with a market maker. (Insight updated 06/23/17)
ETF.com Fit Insight
Segment leader EWP takes a plain-vanilla approach to the Spanish equity market. Its index is a variant of our neutral benchmark, so the fund scores highly in Fit. That means it's
“EWP is extremely top-heavy” top-heavy; Banco Santander alone makes up roughly 20% of the portfolio, and the top 10 holdings account for over 70%. Unsurprisingly, financial firms dominate at roughly 50% of the portfolio. To keep management costs under control, EWP completely cuts out the benchmark's tiny allocation to small caps.
QESP makes equal allocations to three MSCI factor indexes: value, low volatility, and quality. Unsurprisingly, the handful of large-caps that dominate EWP's portfolio see moderate cuts to their allocations in QESP. We also see moderate sector tilts. Still, the fund's performance hasn't been radically different from that of our neutral benchmark.
Relative newcomers HEWP and DBSP both track currency-hedged variants of our benchmark. HEWP gets its equity exposure by holding shares of EWP, while DBSP directly holds the underlying stocks. In practice though, this distinction will have very little impact on performance. Both funds Fit extremely well on a size and sector basis, but the currency-hedging feature means that realized performance will be very different—for better or worse—when the Euro moves against the US dollar. (Insight updated 06/23/17)