Beyond Poor GREK

May 25, 2012


The funds are:

  • Global X FTSE Greece 20 (NYSEArca: GREK)
  • iShares MSCI Spain Index Fund (NYSEArca: EWP)
  • iShares MSCI Italy Index Fund (NYSEArca: EWI)


Admittedly, GREK, which launched fairly recently, has a shallow fund asset base—$2.5 million. However, EWP and EWI show much stronger investor interest, with assets of $140 million and $127 million, respectively.

If things head south, investors in risky country-specific ETFs may suffer greater losses than those market players that diversify across all of Europe.

And in case things get a whole lot worse before they get better, even those not invested in country-specific ETFs should hedge their positions.

Besides shorting securities, investors can also utilize inverse currency ETFs and ETNs.

Two possible choices include the ProShares UltraShort Euro ETF (NYSEArca: EUO) and the Market Vectors Double Short Euro ETN (NYSEArca: DRR), which have both done well for those holding them in recent months.

EUO returned 18.72 percent, while DRR returned 19.79 percent, whereas EWP and EWI lost 37.56 percent and 38.73 percent, respectively.

A broader Europe ETF, such as the Vanguard European (NYSEArca: VGK), served investors slightly better, but still wound up in the red at -18.63 percent.


Hedge Options

Source: Bloomberg

If investors don’t want to expose their portfolios to counterparty risk from ETNs or tricky inverse funds, they could cushion their exposure to Europe by choosing a fund with a higher percentage of assets allocated to stronger economies.

This may require diversifying away from the eurozone, but that may not be such a bad thing.

Investors can find a European ETF with maximum EU exposure without the PIGS.

Two funds that come to mind are the SPDR Stoxx Europe 50 ETF (NYSEArca: FEU) and the iShares S&P Europe 350 (NYSEArca: IEV). Although these funds won’t totally steer clear of disaster, they will allow investors to retain exposures in the region with minimal drag from EU’s weakest economies.

I’ve just scratched the surface on how broad Europe-focused ETFs can help investors negotiate the increasingly dire straits. So I’ll circle back next time and fully develop that line of defense.


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