EPOL iShares MSCI Poland ETF

Thanks to the ongoing European debt debacle, many investors have decided to go beyond the euro zone for their European exposure. In order to do this, most have looked to developed nations such as Switzerland, Great Britain or Norway for European holdings with potentially less risk (read Norway ETFs For Safer European Play).

Yet while these markets may have less volatlity, they also have severe growth problems stemming from the combination of very mature economies and weak demographics. Furthermore, many of these developed nations tend to have high levels of exposure and correlation to broad European equity markets anyway, suggesting that they will not be spared from much of the crisis.

 As a result, a look to Eastern Europe has become increasingly popular as these nations tend to have low budget deficits, smaller levels of euro zone exposure, and still have room to grow. While it is true that the demographic profile isn’t too favorable in this region of the world either, the low per capita GDP of this region implies there is plenty of low hanging fruit left for these surging nations.

While Russia is also a popular choice for this region, many investors would be better served by taking a closer look at Poland instead. The Eastern European nation has had comparable growth rates to its Russian neighbor but arguably has a much better investing climate (read Three Great ETFs For Your IRA).

This is because Poland has far less worries on the corruption front while having a well educated, tech savvy workforce as well.  In fact, Poland currently ranks in the top fifty countries from a competitiveness standpoint, beating Russia out by over 20 places.

Thanks to this competitiveness, the large size of the Polish economy—currently the nation is one of the 20 largest economies on Earth— and the much more diversified nature of the country compared to Russia, it could be time to give the nation a closer look (see Is Now The Time To Buy The Russia ETFs?).

Currently, investors have two Polish ETF options on the market, each of which offers great exposure to the nation’s economy. While they might appear similar at first glance, there are actually a number of key differences that investors need to be aware of before making a choice on this surging nation which we have highlighted below:

Market Vectors Poland ETF (PLND)

The original Poland ETF, this product tracks the Market Vectors Poland Index, a benchmark that consists of about 25 companies that are either headquartered in Poland or get at least 50% of their revenues from the nation. Currently, the ETF sees volume of 23,000 shares a day on assets of about $32 million, implying medium sized bid ask spreads.

Investors should also note that the product has an expense ratio of 60 basis points although this is only capped until May first of this year. After that day, the expense ratio could rise to 94 bps unless a new cap is put in place (read China Small Cap ETFs Head-to-Head).

In terms of holdings, financials consist of about one-third of the holdings, and are trailed by double digit weightings to basic materials (15%), energy (15%), and utilities (13%).  From a market cap perspective, large caps dominate, although mid caps do account for about 20% of assets as well.

 Unfortunately, over the past year, performance has been quite weak in this ETF has the fund has lost about one-third of its value. However, year-to-date has been much more robust as the product has added nearly 14.3% to its value in the time frame. Adding this to the solid yield of 3.7% for the fund and investors may have a decent long-term choice on their hands in this Poland ETF.

iShares MSCI Poland Investable Market Index Fund (EPOL)

The newcomer to the space, EPOL also seeks to follow a benchmark of Polish securities. This is done by following the MSCI Poland Investable Market Index which looks at about 50 companies that are based in the Eastern European country giving access to roughly 99% of the market capitalization of the Polish equity market.

In terms of fees, this Polish ETF beats out PLND by a single basis point, charging 59 bps per year. Additionally, volume and assets under management are quite good in this product, giving the fund a tighter bid ask spread on average than the Market Vectors product (see more on ETFs at the Zacks ETF Center).

The sector exposure, however, is quite comparable to the Van Eck fund, although slightly more concentrated. To this end, financials constitute 38% of the product, followed by an 18% weighting to basic materials, and 13% to energy. Large caps dominate this fund too; mid cap and smaller securities make up about 23% of total assets while the vast majority of holdings are classified as blend stocks from a style perspective.

Much like its counterpart, EPOL has fallen by about one-third over the past 52 weeks. Gains have been had so far in 2012 though as the product has added about 14% since the start of January. Additionally, the yield in this ETF has been above 5% as of late, suggesting it could be a decent source of current income for emerging market focused investors.

 

	PLND	EPOL
Expense Ratio	0.60%	0.59%
Volume	23,100	66,200
Top Sector (% holdings)	Financials (34%)	Financials (38%)
Total Holdings	31	51
YTD Return	14.3%	14.0%
Yield	3.7%	5.05%

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